Altice Has 50% Upside Potential, Buckingham Says In Bullish Initiation

Altice USA Inc ATUS, the seventh-largest U.S. broadband provider and sixth-largest video provider, has seen its stock fall more than 40 percent since its recent highs, and investors may want to take advantage of the dip, according to Buckingham Research Group.

The Analyst

Buckingham's Matthew Harrigan initiated coverage of Altice's stock with a Buy rating and $30 price target.

The Thesis

Although Altice isn't the largest broadband provider, it does boast the most affluent consumers, as nearly 65 percent of total customers are within the New York City metro area, Harrigan said in the initiation note.

The company stands out compared to its peers in delivering $347 in 2018E EBITDA-CapEx per home passed, versus $249 for Comcast Corporation CMCSA and just $157 for Charter Communications Inc CHTR, the analyst said. 

Altice is increasingly moving its profitability toward higher-margin broadband through the new Altice One home hub, Harrigan said. The platform integrates streaming content with "superior" Wi-Fi capabilities.

The broadband provider should be able to achieve a long-term CapEx-to-sales ratio below 10 percent, the analyst said. 

Altice is capable of generating "ample" free cash flow of nearly $7.6 billion through 2021, according to Buckingham. This should help the company achieve its target debt-to-EBITDA multiple of 4.5 to 5x and retire nearly 29 percent of all current shares over the same time period, Harrigan said. 

Buckingham's base case scenario for Altice implies a 49-percent return from current levels, and a best case scenario could yield a 70-percent return. Investors face a "favorable" risk-reward profile at current levels, according to the sell-side firm. 

Price Action

Altice shares were down 1.75 percent at $19.70 at the close Tuesday.

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