Company Reports

While the end of the federal Affordable Connectivity Program remains an issue for Charter and customer metrics remain weak, profitability was a notable positive in the firm's first-quarter results. Charter has been the biggest beneficiary of the ACP, with 5 million (about 16%) of its broadband customers receiving the subsidy. Management expects weak customer growth over the next couple of quarters, but it believes EBITDA will grow in 2024 despite the program's end. After trimming our fair value estimate to $500 recently to include an estimate of the ACP impact, we are dropping our estimate to $490, primarily on expectations for slower business customer growth. We still believe Charter shares are deeply undervalued, but we caution that uncertainty is higher than with cable peer Comcast.

We generally 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. However, we aren’t enamored with the extremely heavy discount on broadband and wireless services it offers. We believe this type of promotion tends to attract disloyal customers while also diminishing the value of these services in consumers’ minds. Charter's heavy exposure to the Affordable Connectivity Program, a federal broadband subsidy, may also impair growth in the short term as funding dries up in 2024. Still, we believe the firm is positioned to remain a dominant broadband provider and produce stable cash flow.

We generally 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. However, we aren’t enamored with the extremely heavy discount on broadband and wireless services it offers. We believe this type of promotion tends to attract disloyal customers while also diminishing the value of these services in consumers’ minds. Charter's heavy exposure to the Affordable Connectivity Program, a federal broadband subsidy, may also impair growth in the short term as funding dries up in 2024. Still, we believe the firm is positioned to remain a dominant broadband provider and produce stable cash flow.

Ugly headline numbers marred Charter’s fourth-quarter results. While we don’t see much reason to change our long-term view of the firm, the next couple of years are shaping up to be more challenging than we had expected. We are trimming our fair value estimate to $550 from $580, but we believe the market has overreacted to current weakness.

We generally 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. However, we aren’t enamored with the extremely heavy discount on broadband and wireless services that its Spectrum One offer provides. We believe this type of promotion tends to attract disloyal customers while also diminishing the value of these services in consumers’ minds. Still, we believe the firm is positioned to remain a dominant broadband provider and produce stable cash flow.

Charter’s third-quarter results were noisy and don’t provide much insight into the business’ performance. Management indicated that the dispute with Disney in September had only a small impact, but estimating customer losses or missed sales opportunities isn’t precise. More importantly, we won’t have concrete evidence of how customers will likely react to the expiration of Spectrum One promotional discounts until late this year or early next year. While we still don’t like Charter’s decision to offer big promotional discounts, we still like the firm’s long-term position to maintain share and generate cash flow. Our fair value estimate remains $580.

We generally 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. However, we aren’t enamored with the extremely heavy discount on broadband and wireless services that its Spectrum One offer provides. We believe this type of promotion tends to attract disloyal customers while also diminishing the value of these services in consumers’ minds. Still, we believe the firm is positioned to remain a dominant broadband provider and produce stable cash flow.

We believe Charter and Disney have come to a reasonable agreement to restore most Disney television channels to Charter customers. Disney is taking its first step in more closely tying its streaming strategy to the traditional television business. We expect other media firms will follow suit in the coming months to slow the decline of the traditional television customer base, which still delivers the majority of profits across the media industry.

Charter’s differentiated and aggressive approach to the market showed clearly in its second-quarter results, with solid customer additions, weak revenue growth, and muted profitability. We still don’t like the firm’s deep discounting on broadband and wireless service with Spectrum One, which we think will challenge customer growth down the road. But we still believe Charter is well positioned to generate consistent cash flow over time. Our fair value estimate remains $580.

We generally 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. However, we aren’t enamored with the extremely heavy discount on broadband and wireless services that its Spectrum One offer provides. We believe this type of promotion tends to attract disloyal customers while also diminishing the value of these services in consumers’ minds. Still, we believe the firm is positioned to remain a dominant broadband provider and produce stable cash flow.

One of the primary debates coming out of Charter’s first-quarter earnings release concerns its wireless business. The firm added a record 686,000 net new wireless customers during the quarter, equal to more than 35% of the industry total. Spectrum One, which offers broadband and wireless at $50 per month for a year—essentially free wireless service with inexpensive broadband—is driving wireless growth, though management claims most new customers are taking other rate plans. The question is whether Spectrum One customers will keep wireless service once the promotion expires. Charter expects they will, on balance, but we remain skeptical. Regardless, we expect broadband will remain at the center of Charter’s customer relationships and drive the vast majority of profit over the long term. Our fair value estimate remains $580.

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.

Charter’s Spectrum One offering appears to have driven strong wireless customer growth, with some benefit to the core broadband business as well. The firm added 615,000 net wireless customers during the fourth quarter (to 5.3 million), by far its best performance to date. However, we still have questions around the profitability of the wireless effort and how sticky these customers will be once promotional periods end, especially among those looking for a phone subsidy. We’re leaving our Charter fair value estimate at $580 and continue to believe the stock is undervalued, though we still prefer Comcast among cable companies.

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.

Charter spooked the stock market with plans to increase capital spending over the next three years to upgrade its core cable network while also expanding into new, primarily rural markets. New CEO Chris Winfrey is putting his stamp on the company, pulling spending forward on the belief that upgrades will eventually be required anyway, and faster deployment will yield strategic benefits. The firm’s outlook doesn’t differ materially from our forecast in aggregate. We’ve long expected cable companies will need to increase spending over time to compete against fiber-based networks like Verizon FiOS, and this assumption is already baked into our fair value estimates. Our Charter estimate remains $580 per share.

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.

We like Charter’s aggressive effort 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 slow in the coming years. Charter’s aggression extends to its capital structure, where heavy share repurchases have bolstered shareholder returns but have also kept debt leverage high, which will likely add volatility to the share price and could limit financial flexibility.

We like Charter’s aggressive effort 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 slow in the coming years. Charter’s aggression extends to its capital structure, where heavy share repurchases have bolstered shareholder returns but have also kept debt leverage high, which will likely add volatility to the share price and could limit financial flexibility.

Charter followed peer Comcast in reporting weak broadband customer metrics for the second quarter, pointing to the same underlying causes: modest consumer switching, the return of normalized seasonal patterns, and increased competition for new customers from fixed-wireless providers. Amid this backdrop, the firm delivered solid financial results, increasing revenue nicely, expanding margins, delivering strong cash flow, and repurchasing shares aggressively. We believe the market has severely overreacted to slowing broadband customer growth, making Charter stock attractive relative to our $610 fair value estimate.

We like Charter’s aggressive effort 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 slow in the coming years. Charter’s aggression extends to its capital structure, where heavy share repurchases have bolstered shareholder returns but have also kept debt leverage high, which will likely add volatility to the share price and could limit financial flexibility.