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Why You Should Hold Onto Charter Communications

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On Dec 27, Charter Communications Inc CHTR was upgraded to a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Charter Communications is the second largest cable multi service operator in the United States after Comcast Corporation CMCSA.

Let's have a look at the catalysts that led to the stock's upgradation.

Bullish Developments

Charter Communications intends to venture in the U.S. wireless industry with the launch of wireless services in 2018. Notably, the company inked an agreement with national telecom behemoth Verizon Communications to operate as a mobile virtual network operator (MVNO). The company will utilize Verizon's wireless network along with its WiFi network to offer mobile services. On May 8, Charter Communications and Comcast announced their joint wireless venture to better explore their opportunities, accelerate and enhance each other's ability to participate in the national wireless marketplace.

Charter Communications has plans to execute field trials for the upcoming 5G wireless network. Notably, these trials were backed by spectrum test licenses granted to the company by the Federal Communications Commission (FCC), the U.S. telecom regulator.

The twin buyout of Time Warner Cable and Bright House Networks have strengthened the company's foothold in hybrid fiber coax and fiber networks. The company is adopting various initiatives to improve Spectrum products and cloud-based user interfaces.

The company witnesses growth in residential and commercial internet as well as voice customer addition, which is evident from increase in revenues and subscriber gain. Further, investments in business services division and rollout of several initiatives will drive upcoming results.

The company's recent activities look promising and likely to add to its prospects.

Charter's Latest Deals

On Dec 13, Altice USA, Charter Communications and Comcast announced a preliminary agreement to form a new Interconnect in the New York market. This will provide a one-stop advertising solution to reach more than 6.2 million households across the New York DMA — the largest advertising market in the country. For marketers, agencies and advertisers, the new Interconnect will provide an enhanced way to strategically reach audiences through TV and digital platforms. The Interconnect is expected to be launched in second-quarter 2018.

On Dec 11, Charter Communications settled a year-long content licensing dispute with Univision Communications Inc. Per sources, Univision agreed to dismiss the case against Charter Communications. The companies have informed the court about the settlement. However, the terms of the deal have been kept under wraps.

On Nov 30, Charter Communications and Altice USA Inc ATUS have reportedly inked an agreement to broadcast respective regional cable news networks. Per the deal, Charter will telecast i24NEWS, which was launched by Altice USA in January. The channel is available on Altice USA's Optimum and Suddenlink systems. Meanwhile, Charter's Spectrum News NY1 will be available to Optimum users in New York, New Jersey and Connecticut.

On Nov 15, Charter Communications and Viacom Inc. VIAB announced a multi-year renewal and expansion deal of their distribution relationship. The companies formed an alliance for the co-production of original content and collaboration around advanced advertising.

Price Performance

The company portrays an impressive price performance backed by positive prospects, latest ventures and opportunities. On a year-to-date basis, the stock has returned 18.3% compared with the industry's rally of 13.4%.

 

 

Estimates Trending Up

We note that the sales and Earnings Per Share (ETF:EPS) estimate for Charter Communications has moved up for fourth-quarter 2017 and first-quarter 2018.

Sales growth for fourth-quarter 2017 and first-quarter 2018 are estimated to rise 3.1% and 4.4%, respectively. For 2018, sales are expected to improve 4.9%.

The EPS growth for fourth-quarter 2017 and first-quarter 2018 is estimated to increase 167.1% and 54.2%, respectively. For full-year 2018, EPS is expected to soar 150.6%.

Downturns

Despite such positives, Charter Communications' presence in a saturated and competitive multi-channel U.S. video market is a concern. Like other cable operators, the company continues to lose subscribers to online video streaming service providers such as Netflix, Hulu.com, YouTube etc. because of their cheap source of TV programming. Notably, in third-quarter 2017, the company lost 1,04,000 video customers in the residential segment. The company will continue to witness subscriber loss in the upcoming quarter as well.

Further, gaining customers from competitors is a difficult task as most pay-TV operators are offering innovative packages. Moreover, the U.S. pay-TV industry is affected by the ongoing massive consolidation between telecom and cable-TV operators.

Charter Communications' high debt level is a potential hazard. At the end of the third quarter, the company had $2,164 million of cash and cash equivalents and $68,132 million of outstanding debt compared with $1,535 million and $62,464 million, respectively, in the year-ago quarter. The debt-to-capitalization ratio at the end of the reported quarter was 0.61 compared with 0.54 at the end of 2016.

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The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

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