Charter Posts Soft Growth and Margins; FVE Lowered to $580

Charter’s third-quarter results were modestly disappointing, in our view, with growth and profitability on the weak side. Like Comcast, the firm reported a return to net broadband customer growth, with seasonality and footprint expansion providing a lift. Our long-term view remains unchanged, but we have adjusted our near-term expectations, lowering our fair value estimate to $580 from $610. We believe shares are undervalued, but we prefer Comcast to Charter, which trades at a deeper discount to our valuation and has a stronger balance sheet. Comcast has accelerated share repurchases to capitalize on its weak stock price while Charter, already sitting near the high end of its leverage target, has pulled back. Incoming CEO Chris Winfrey plans to hold an investor event in December to outline his plans, but doesn’t expect to make major changes to the firm’s broader strategy or financial structure.