2 New High-Quality Companies Under Coverage

Michael Hodel: We recently initiated coverage on Charter Communications and Altice USA, the second- and third-largest cable companies in the United States.

On Charter, we initiated coverage with a $350 fair value estimate and a narrow moat rating. Like most cable companies, we think Charter has a network advantage versus its primary rivals, the phone companies like AT&T and Verizon, in the consumer fixed line business. Its network gives it the opportunity to invest very minimal amounts to continue to add capacity and speed to its network, which we think puts it in a great position to meet consumer demand over time as bandwidth needs continue to grow for most households. That said, we still think this is a competitive market, and Charter is not quite as efficient as its peer, Comcast, so we did go with a narrow moat on Charter rather than wide, which is our current economic moat rating for Comcast.

With Altice USA, we initiated coverage with a $25 fair value estimate and also a narrow moat. Again, not wide, because we think the company faces pretty intense competition in its primary market, New York City. About 60% of the company's footprint is in the New York metropolitan area where it faces intense competition from Verizon and the investment that Verizon has made in its network over the last decade or so.

We think both stocks are roughly fairly valued, with Altice USA maybe a little bit undervalued here and Charter a little bit overvalued, but they're both stocks where we think the management teams have good incentives to build wealth for shareholders over time. And we do like, again, the strong network advantage that cable companies typically have, and they're both stocks we'd be interested in owning at lower valuations.