Cable One's Strategic Positioning Is Underappreciated, KeyBanc Says In Upgrade

A strategic focus on broadband and commercial services has resulted in Cable One Inc CABO posting adjusted EBITDA margins of around 47 percent and unlevered FCF margins of 27 percent, versus peer averages of around 39 percent and 23 percent, respectively, according to KeyBanc Capital Markets. 

The company’s adjusted EBITDA and unlevered FCF margins could trend toward 52 percent and 35 percent, respectively, over the next three years, the sell-side firm said in a Monday note. 

The Analyst

Analyst Brandon Nispel upgraded Cable One from Sector Weight to Overweight and set a $1,025 price target.

The Thesis

Cable One's Clearwave Communications acquisition is expected to generate $34.9 million in revenue and $23.7 million in adjusted EBITDA in 2019, Nispel said in a note. 

Although there is uncertainty surrounding Cable One's rebrand to Sparklight, Cable One has upside to the consensus estimates for 2019, the analyst said. 

Cable One has 800,000 customer relationships and is the seventh-largest U.S. cable provider. Given its smaller size, the company may become an acquisition target in a space where cable systems have received 11-12 times EBITDA multiples, Nispel said. This will offer downside valuation support, he said. 

The company has managed to accelerate growth by leveraging its existing platform to acquire rural cable operators, the analyst said. If the company continues this strategy, it should have a superior growth profile relative to peers, he said. 

5G is unlikely to be a threat for Cable One in the next several years given the company’s rural positioning, according to KeyBanc. 

Price Action

Cable One shares were trading more than 1-percent higher at $841.55 at the time of publication Tuesday. 

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