Charter's Network Upgrade Impressive, While Capex Likely To Hurt FCF & Buybacks, Analysts Say

 

RBC Capital analyst Kutgun Maral reiterated Outperform on Charter Communications, Inc CHTR and reduced the price target from $480 to $460.

Charter's investor meeting provided an attractive outlook for its network evolution, footprint expansion, converged go-to-market strategy, and efforts around improving the customer experience

The target cost to upgrade the network and penetration of early rural builds impressed the analyst. 

However, the impact on broadband subscriber growth and ARPU could take years, and the spend driving the new capex cycle through 2025 will pressure FCF and buybacks. 

Credit Suisse analyst Douglas Mitchelson reiterated Outperform and cut the price target from $551 to $541.

As expected, Charter's Analyst Event focused on a material increase in capex for plant expansion, mainly rural builds, and its "network evolution" path. 

However, spending is accelerated well beyond the analyst's above-Street estimates, with the update increasing Mitchelson's capex estimates and lowering Charter's FCF outlook for at least the next few years. 

KeyBanc analyst Brandon Nispel remained Overweight with a $580 price target.

Nispel reduced 2023 EBITDA estimates and raised capital spending estimates. 

The near-term forecast is clouded, which will likely make it difficult for the stock to work.

However, Nispel believed investors will under-appreciate the long-term gain from ramping investment which appears solid. Strategically the analyst thought CHTR should be as well positioned competitively, even with incremental competition.

Incoming CEO Chris Winfrey showed well and delivered what the analyst views as a significant pivot in strategy. 

CHTR has the majority of Home Broadband customers, a better Home Broadband product, and a Mobile service that is <50% the cost of AT&T Inc T and Verizon Communications Inc VZ. Nispel struggled to see how big Wireless providers would be able to match the offer.

Rosenblatt analyst Barton Crockett retained a Buy and $437 price target.

Charter's new CEO Chris Winfrey's focus was outlining plans for stepped-up capex to migrate to next-gen, multi-gig broadband. 

The plan was said to be growth-focused. But the broadband speed step-up is meaningfully defensive. 

Growth opportunities are more apparent in Charter's mobile push and leveraging government subsidies for rural build-outs. 

A principal appeal for CHTR remains share repurchase. 

Price Action: CHTR shares traded lower by 13.77% at $338.59 on the last check Wednesday.

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