Network Expansion and Upgrades Will Crimp Charter's Cash Flow

We like Charter’s efforts to drive customer penetration by limiting price increases, improving customer service, and expanding its offerings to appeal to a variety of preferences. We expect the firm will successfully navigate growing competition from the phone companies, though growth will likely remain very modest. Charter’s aggression extends to its capital structure, where heavy share repurchases have bolstered shareholder returns but have also kept debt leverage high, which adds volatility to the share price and limits financial flexibility. That lack of flexibility has hurt recently as it has had to scale back share repurchases, despite a weak share price, as it ramps up spending on network expansions and upgrades.