Latest from Next TV in Downgrade

Moffett Changes Course on Altice USA: ‘Wrong Stock, Wrong Time’

michael.farrell@futurenet.com (Mike Farrell) — Fri, 18 Feb 2022 14:14:27 +0000

A day after expressing at least some optimism that Altice USA, after a disappointing Q4, might have a little gas left in the tank to drive its way out of its most recent hole, influential media analyst Craig Moffett has changed course on the stock, downgrading his outlook to “neutral,” and slashing his 12-month price target on shares to $15 from $33 previously.

Altice USA stock fell more than 20% and hit a new 52-week low on Thursday — $11.12 per share — before closing at $11.83 down 17.8%. With Wednesday’s falloff, the shares are down nearly 27% since the beginning of the year.

The company lost about 2,000 broadband subscribers in Q4 — and shed 3,000 for the year — slightly better than analysts’ consensus expectations and spurring some optimism that it could have been worse. Altice CEO Dexter Goei also outlined a plan to accelerate its fiber buildout and reverse the downward trend. Many analysts took the bait, and Moffett wrote Wednesday that Altice USA could probably be fixed, but it wouldn’t be easy and it would take some time. By Friday morning, after the stock cratered, his attitude changed.

Moffett isn’t the only analyst to downgrade the stock, but his mea culpa comes at a time when the cable sector itself is under pressure from slowing growth in broadband and rising competition from streaming video and telco companies.

Also: Altice USA Streaming-Obsessed, Broadband-Only Customers Are Averaging More Than Half a Terabyte of Usage Each Month

“Wrong. Wrong story. Wrong time. Wrong call (on our part) to have stuck around too long,” Moffett wrote Friday. “Just … wrong. There’s a time for highly levered fix-it stories. This isn’t that time.”

Altice shares were down about 2% in pre-market trading Friday to $11.59 each.

In his Thursday note, Moffett wrote that Altice has been in a similar situation in a previous life as Cablevision Systems, in 2013. At that time, the company was faced with industry-leading customer penetration rates for its service, which made growth difficult. While the rest of the market thought Cablevision was on its last legs, -- including Moffett — Altice swooped in and paid top dollar for the asset, claiming it could right the ship with a more stringent cost structure. That worked for a while, but now, the company is faced with a familiar dilemma.

“Altice is now entering what is likely to be a multiyear ‘fix-it’ phase,” Moffett wrote. “At a time of rising interest rates and falling risk appetites, a company with badly battered near-term growth prospects, and with a higher warranted WACC [Weighted Average Cost of Capital], Altice USA looks far less compelling than it had. We grossly overestimated the market’s willingness to underwrite their turnaround.”

Also: Broadband Slowdown Forces Analyst to Go Negative on Cable Sector

Moffett still believes that Altice USA can be fixed -- he was especially hopeful about Suddenlink’s prospects -- but he noted it’s probably going to take longer than most thought. Where he was most wrong, he added, is in expecting the market to ignore the near-term challenges and look toward longer-term growth.

“Without a catalyst — such as a take-private that we once viewed as a reason to own the stock (that didn’t work out so well) — we have much lower expectations for a near term rebound to what we still believe is a materially higher warranted value,” Moffett wrote.

He’s now forecasting that Altice will have no real broadband growth in 2022 (about 9,000 new customers), and will add 34,000 high-speed data customers in 2023.He doesn’t expect growth to approach 219 levels (75,000 additions) until 2025 (72,000).

“Their steps to expand their footprint through edge-outs and, where available, government deployment subsidies, are welcome,” Moffett wrote. “But they will take time. We project no real broadband unit growth for 2022, and only modest growth in 2023.” ■

Barclays Downgrades Cable Sector to ‘Neutral’

Mike Farrell — Mon, 04 Dec 2017 21:24:00 +0000

Barclays media analyst Kannan Venkateshwar lowered his rating on the cable sector to “neutral” on Monday, citing slowing broadband growth and heightened competition for video customers.

In a note to clients, Venkateshwar wrote that his positive view on the sector over the past four years has been supported by gains in video market share versus satellite providers, growth in broadband and mergers and acquisitions.

The market has had an equally bullish stance – Comcast and Charter Communications have outperformed the Standard & Poor’s Index by 52% since 2013. But that run could be coming to an end.

“Looking into 2018 and beyond however, we believe the cable story is likely to face increasing headwinds on account of growing competitive pressure in video, slowdown in broadband growth, levered balance sheets, M&A permutations becoming more uncertain in terms of pay offs, optimistic estimates and valuation,” Venkateshwar wrote.

The analyst was even more wary of Charter’s prospects, adding in his note that optimism for the stock has been largely based on growth expectations, share buybacks and M&A.

Barclays lowered its rating on Charter to “underweight,” mainly because its forward estimates have come down considerably in the past year, which Venkateshwar now says could result in cash flow coming in below expectations. That gap could widen in light of double-digit increases in programming costs, the expense of launching a wireless service next year and its reluctance to raise broadband prices. As far as M&A, Venkateshwar wrote that although speculation has helped fuel the stock, “most permutations that have been suggested appear to have challenging economics, especially given Charter’s potential ask.”

The stocks were largely unaffected. Comcast shares were up about 5% ($1.89) Monday to $40.32 each as talk that it is one of the companies still interested in purchasing some 21st Century Fox assets continued. Disney also reportedly restarted talks with Fox. Cable One was up 1% ($7.10) to $701.92 per share and Charter fell less than 1% to $334 each. Altice USA was down 0.4% (8 cents) to $18.37 per share.

Distributors’ Good Year Divides Stock Pickers

Mike Farrell — Mon, 17 Oct 2016 12:00:00 +0000

Prominent analyst Craig Moffett’s decision to downgrade Charter Communications stock to “neutral” last week was a bit of a contrarian move — most of the other analysts covering the sector rate the stock at a “buy” or equivalent — but it raises an important question about cable distributors overall: how long can the euphoria last?

Moffett still has high hopes for Charter, figuring the company will generate about $30 per share in free cash flow by the end of the decade and should meet integration targets for its recent purchases, Time Warner Cable and Bright House Networks.

Charter’s expected entrance into the wireless market could prove risky — both it and Comcast have said they have exercised their mobile virtual network operator (MVNO) rights with Verizon Communications — but that isn’t expected to have a material short-term impact on the stock.

The issue is whether Charter’s success and potential are already baked into its stock price.

“Given Charter’s strong [year-to-date] performance, it is now more difficult to see significant near-term upside for Charter’s stock,” Moffett, the MoffettNathanson principal and senior analyst, noted.

TARGETED AT $305

That said, Moffett still has one of the highest 12-month price targets (at $305 per share) on Charter, one of several distribution stocks that have performed well this year.

In the past 10 months, Charter shares have risen 27.3%, from $202.50 per share to $257.86 on Oct. 11. That’s only slightly behind Liberty Broadband, the vehicle that holds cable legend John Malone’s 27% interest in Charter, up 29.9% for the year.

The top performer so far this year is Cable One, up 35% to $584.80, mainly on speculation it could be a takeover target in an expected consolidation wave.

Comcast is in third place, up 15.1% to $64.96 per share on Oct. 11.

Even slower-growth stocks like AT&T, which purchased DirecTV in July 2015 and lost about 391,000 Uverse TV customers in the second quarter, and Verizon, which has seen customer additions for Fios TV product slow down, have seen their stocks rise.

Shares in AT&T are up about 14% so far this year to $39.33 from $34.41, while Verizon has risen 9% to $50.30 from $46.22.

Cable stocks have been on a phenomenal run since 2013, when Charter and Malone first goosed the market with their initial pursuit of Time Warner Cable. After a brief hiccup — the attempt by Comcast to buy TWC that was later abandoned — Charter sealed the deal last May.

Cable distribution stocks were up 50% in 2013, 15% in 2014 and 10% in 2015. So far this year, despite two fewer stocks in the mix, the sector is up about 25%. (Charter absorbed Time Warner Cable and Altice USA took in Cablevision Systems.)

Programmers, by contrast, have been hit hard due to uncertainty around over-the-top services, skinny bundles and falling ratings and ad revenue.

After a strong run in 2013, when the sector was up 52%, programming stocks began to slide in 2014 (down 1.7%) and fell 15.4% in 2015. So far in 2016, programming stocks are down 4%.

CASH RISE IN LATE 2017?

Other analysts still see runway for Charter. Telsey Advisory Group media analyst Tom Eagan raised his 12-month price target to $302. Eagan said new pricing and packaging slated for select TWC and Bright House markets in the second half of the year should be completed system-wide by mid-2017. Cash flow, expected to reach $13.96 billion by the end of this year, should rise to $15.3 billion by the end of 2017, according to Eagan’s estimates, fueled by cost synergies ($600 million in 2016 alone) and customer growth.

Eagan predicted Charter would add about 30,000 residential video subscribers and 1.75 million high-speed Internet customers in 2017.

Pivotal Research Group CEO and senior media & communications analysts Jeff Wlodarczak, who has had a “buy” rating on Charter since it came out of bankruptcy in 2009, still sees plenty of upside in cable stocks going forward, fueled by their broadband dominance. Wlodarczak also has a $350 per share target price on Charter.

“My cable thesis remains unchanged,” Wlodarczak said. Cable’s position as the primary provider of high speed Internet service to residential and commercial customers should allow cable companies to continue to “take data share, raise prices and create a halo effect for phone and TV additions,” he said.