KeyBanc: Growth, Synergy Opportunities In Cable One-Fidelity Deal Justify Price Tag

Cable One Inc CABO has continued to acquire cable systems and should be able to close its latest acquisition of Fidelity Communications at the start of of the fourth quarter, according to KeyBanc Capital Markets.

The Analyst

Brandon Nispel maintained an Overweight rating on Cable One and raised the price target from $1,210 to $1,316.

The Thesis

Cable One acquired NewWave in 2017, closed the Clearwave Communications acquisition in January 2019 and is in the process of closing on the purchase of Fidelity Communications, Nispel said in a Wednesday note. (See his track record here.) 

Cable One has agreed to pay $526 million for Fidelity, which generated last quarter annualized EBITDA of $45 million in the fourth quarter of 2018, the analyst said.

With expectations of $15 million in synergies over the next three years and underlying growth of 5-10%, the price paid for the latest M&A deal seems justified, Nispel said. 

KeyBanc expects the Fidelity acquisition to close in the fourth quarter and generate 2020 revenue and adjusted EBITDA of around $131.9 million and $57.1 million, respectively. Synergies may reach about $3 million in year one, the analyst said. 

Nispel estimates 

Cable One could potentially acquire another cable system in 2020, Nispel said, adding that He the company could achieve revenue growth in the low single digits and EBITDA growth in the mid-to-high single digits beyond 2020. 

Price Action

Cable One shares were up 0.81% at $1,119.50 at the time of publication Thursday.

Related Links:

Q1 Earnings Outlook For Cable One

Cable One Buys Fidelity Communications Assets In $525.9M Deal