This ticker fell 25% last month back to its yearly trendline where it’s seen roughly -5% a month for a -60% yearly decline. It’s well below Covid levels and 60% below its 2016 price.
It has an extremely low PE but this metric doesn’t matter since they are a levered telcom. Their EV / EBITDA is 5.3x compared to Comcast’s 4.5x AT&T’s 6.2x and Verizon’s 7x. They have 5.4B FCF with 7.2B expected 2027 FCF after capex into rural buildout and network upgrades finishes.
They have a larger broadband network than Comcast now after the latest merger with Cox.
Their revenue declined -1.7% and they lost 500k subscribers or roughly the same \~1.7% of their internet subscribers last year. -4% EBITDA
The Good:
They have a huge durable network that is good enough and that will last for the foreseeable future. It can continue to be upgraded and high split is offering some faster symmetric speeds to compete with fiber. They are fiber until the last mile which is coax so fiber can be upgraded to homes eventually.
Yes there is competition with fiber buildouts and price wars but these companies are burning cash and many are going out of business trying to lay fiber. Starlink is a niche competitor but they don’t have terrestrial cable. They may have to rely on someone in the future in fact.
They are building customer retention with free phone plans as well and mobile has been growing a bit. And also offering a lot of streaming services with their cable tv package as well which could be good for retention.
And their advertising department makes about 1.5B selling impressions through Spectrum cable + Spectrum TV App + partner streaming apps + Amazon/Fire TV + other CTV inventory. This adds maybe a couple hundred million to FCF.
They have signaled they are going to finally start cutting some debt soon as well.
The Bad:
People hate this company. The customer service has been so bad SNL has made skits about it…
Price wars not allowing for price increases, increased competition, people continue cord cutting cable TV. And broadband which is now their primary revenue stream has continued to shed customers.
Management has not done a great job for shareholders. They spent billions on buybacks at high prices instead of cutting debt. And then billions more or rural network expansion which has yet to pay off.
Employees don’t seem to like working there and feel the company just sees them as a number.
Conclusion:
This company would have to really change to warrant a rebound. They have to shed debt, and make their customers and employees like them again.
With the latest merger and the stock price in the gutter, could this turnaround happen?
I think the fears of continued customer bleed out are overblown and I don’t think these price wars can continue. I think charter has staying power in this fight.
With the merger over, buybacks can continue again at extremely depressed prices in addition to paying off debt. We could see a bottom this year.
Disclaimer: I hold 1000 shares at a $140 cost basis and $42,000 in 150 December 150 calls. I’m currently down around $50,000.