Morgan Stanley Overweight Charter, Sees +35% Of Market Cap To Be Bought Back

Morgan Stanley’s Benjamin Swinburne believes Charter Communications Inc CHTR is well positioned to drive free cash flow per share growth of 30 percent through 2019, which suggests potential upside of 20 percent to the stock valuation.

Swinburne maintains an Overweight rating on the company, with a price target of $265.

Attractive Growth Story

The analyst stated, “Charter shares offer investors a rare levered equity growth story — particularly given the visibility into that growth and capital allocation for a company of this market cap.”

Swinburne also believes since the company has been successfully implementing its proven strategy over the past four years on a larger footprint, Charter Communications will be able to deliver operating free cash flow growth of 16 percent annually from 2016 to 2019.

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Share Buybacks

“Assuming it cannot find compelling investment opportunities elsewhere, we forecast Charter will buyback ~35–40 percent of its current market cap by YE19E,” the analyst went on to predict.

At present, Charter Communication has debt worth $60 billion. However, given the company’s free cash flow profile and the existing interest rate environment, Swinburne believes its leverage is close to optimal for shareholders.

In addition, Swinburne pointed out the risks are manageable. For instance, with regard to regulatory risk, “despite all the noise regarding encroaching regulation, Charter and its US cable peers are growing revenue at their highest levels in years.”