About one year after emerging from Chapter 11 bankruptcy protection, Frontier Communications has been a surprising success story, moving full-speed ahead with building out its fiber footprint, doing it at a cost lower than even the company expected and watching its stock, driven by changing investor sentiment, rise more than 20% in the past three weeks. 

Frontier’s outlook wasn’t always so bright. In 2020, saddled with huge debt, a dwindling subscriber base and an outdated network, the company cleaned house under bankruptcy protection, refinanced its debt and refocused on delivering broadband via a state-of-the-art fiber network. About 14 months later — Frontier emerged from Chapter 11 protection in April 2021 — the company has a clear vision and a mission to beef up broadband speeds and reliability in its predominantly rural markets. Topping it all off is a new logo launched in April to reflect the company’s new direction and commitment to “relentlessly pursue betterness in our business and for our customers,” CEO Nick Jeffery said in a press release at the time. 

That Frontier decided to merely change its logo rather than scrap its name and conduct a total rebrand was telling to MoffettNathanson telecom analyst Nick Del Deo. In a May research report, Del Deo wrote that the decision to refresh the brand was “indicative of the positive effects the changes being made throughout the organization are already having on customer perceptions and marketplace traction.” 

Also: Equipment, Worker Shortage Could Delay Fiber Buildout

Del Deo added that management’s data-driven approach to the business has improved customer perceptions — its American Consumer Satisfaction Index scores are steadily moving up and its Net Promoter scores have surged in markets where it has fiber. 

“Put simply, the choice to refresh the company’s font and logo rather than totally rebrand is further evidence that changes to the business are working,” Del Deo wrote.

That change in sentiment also is evident in Frontier’s stock price. Frontier shares have risen about 21% between May 12 ($22.21) and June 3 ($27.03). While the stock is still down about 8% from the beginning of the year, Del Deo’s $33 target price for the stock seems to signify some decent upside.

Wells Fargo Securities telecom analyst Eric Luebchow was even more optimistic, calling Frontier the “best risk/reward opportunity that has meaningful exposure to fiber overbuilds” in a recent research note. Luebchow estimates Frontier will see an internal rate of return (IRR) of 20% or more at 40% penetration on its fiber build, well outpacing its cost of capital. 

“[Frontier] also has proven metrics that its fiber deployment is gaining traction, with its 2020 cohort of homes already exceeding 40% penetration just 24 months after completion (vs. its 25-30% initial expectations),” Luebchow wrote. “We believe this early success can continue, in part because FYBR on average is undercutting its cable peers on price by ~20% on average over a 3-year period for symmetrical broadband.”

Luebchow added that although year-over-year EBITDA and revenue growth was negative in Q1 — at $1.4 billion, revenue was down 10.7% in the period and  EBITDA of $509 million fell 22%, but both were in line with consensus estimates — he expects them to turn positive in late 2022 and 2023, respectively.

”We strongly view [Frontier] as a mispriced asset and presents a unique opportunity for the longer-term investor,” he wrote.

In a May research note, J.P. Morgan telecom analyst Phil Cusick wrote that Frontier’s fiber buildout was beating expectations, with the third phase of construction -- targeting the last 5 million households of its 15-million home footprint, costing less than the $900-to-$1,000 per passing earmarked for Phase 2. In addition, sell-through was higher and faster than earlier expectations. 

Cusick added that the company was optimistic concerning federal support of the network buildout, and that Frontier has already staffed up to pursue those funds, with the greatest impact expected in 2023. Nevertheless, Frontier believes Phase 2 of the buildout is funded through 2024.

Cusick noted that Frontier plans to build the network out to another 6 million homes in Phase 2, bringing the total number of homes where fiber is available to 10 million. So far, he wrote, Frontier is tracking ahead of schedule, building 640,000 fiber passings in 2021 (ahead of a 500,000-home target) and plans to finish 1.1 million to 1.2 million passings this year, up to 20% ahead of its earlier goal of 1 million additional passings.

In the first quarter, Frontier added 52,000 residential fiber broadband customers, its biggest quarterly addition in that metric ever, and beat analysts’ consensus expectations of 48,000 additions. 

In his report, Luebchow estimated that Frontier would more than triple its residential broadband subscribers over the next five years, from 1.5 million in 2022 to 4.8 million in 2027. Most of those additions will be fiber customers, as the analyst predicts that its legacy copper broadband customers will fall from 1.1 million in 2022 to 650,000 by 2027.

“[Frontier], in our view, remains the best ‘pure-play’ operator given its relative exposure to residential fiber, with a pathway toward revenue growth in early 2023 and a current valuation that makes for an attractive entry point,” Luebchow wrote. ■

A day after its much anticipated Analyst Day in Las Vegas May 10, Dish Network stock fell as much as 20.5% (down $4.46 per share) to $17.29 each in early trading Wednesday, a result of what some analysts said were remaining questions about the company and its wireless future.

Dish shares have been hammered since it reported disappointing Q1 results May 6 — the stock is down 35% since that date and has fallen 45% for the full year — but  many analysts believed that questions regarding the company’s planned 5G wireless service launch would be answered during the Analyst Day. Unfortunately, many left the four-hour May 10 event with more questions than ever before.

In a research note, Barclays Group media analyst Kannan Venkateshwar wrote that instead of offering concrete milestones for the wireless business, which investors could use to “crystallize a valuation framework,” Dish execs instead concentrated on “highlighting network architecture, which is important but something that Dish has been talking about for a while now and has been a topic of conversation more broadly for a few years.” 

Dish stock closed at $17.46 per share on May 11, down 19.7% or $4.29 each. 

Also: Dish Wireless: Strong Stomachs Required 

Venkateshwar said Dish did offer some numbers — it set a goal of 30 million to 40 million wireless customers, suggesting it would take a percentage of market share in the low double-digits — but declined to say how long it would take to achieve those results. Dish management also said it expected to generate more than $6 billion in enterprise revenue from private 5G networks, according to the analyst, although again the timeline was unclear. 

“If this is true then the upside for legacy operators is being significantly underestimated,” Venkateshwar wrote.

What was missing from the presentations was any mention of Dish’s capital structure, all the more complicated now that the company is free cash flow negative, mainly due to the cost of the wireless build, Venkateshwar wrote. Dish reported consolidated free cash flow, or cash flow after capital expenditures are made, of negative $191 million in Q1. That compared to free cash flow of positive $729 million in the prior year and analysts’ consensus expectations of positive $197 million for the period. 

In an email message, MoffettNathanson senior analyst Craig Moffett said the Analyst Day left attendees with more questions than answers.

“I think the consensus coming out of the meeting was that it is simply not credible to suggest that they will get 10% market share of the retail market just for showing up, without revealing anything truly differentiating about their service,” Moffett wrote, adding that the big question in the enterprise segment is why a business would pick licensed spectrum from Dish — for a fee — over free unlicensed spectrum (Wi-Fi). 

“And perhaps more pointedly, it’s still not clear why Enterprise customers will choose Dish over Verizon, nor why Dish will get, as they suggested during the Q&A at the end, half of the economics of every Enterprise deal when they are partnered with a lead systems integrator, cloud provider, multiple software vendors, and multiple equipment providers,” he continued.

But the biggest disappointment may have been the lack of any new developments regarding partnerships for the wireless service.

“[T]here was obviously a hope among the bulls that they would announce a major partnership — Amazon was obviously the hope — that might include some answer to the question of how they will finance their growth,” Moffett wrote. 

Investors have struggled with the economics of Dish’s wireless plans, with the company insisting they can build a state-of-the-art 5G network (using ORAN technology) for $10 billion and analysts insisting that it will cost much, much more.  

In Q1, signs that costs are ramping up significantly were evident as capital spending for the network — across both the retail wireless and 5G network — was up nearly 10 times to $597 million from $62 million in the same period in 2021. ■

Netflix stock fell again Friday (April 22), ending the day at $215.52 (down 1.2%) and capping a three-day decline that saw the company shed 38% of its share price, more than $55 billion in market capitalization and the unofficial title of Streaming Champion of the World. Now with expectations low for Q2, the company is faced with a dilemma: what to do to regain its crown. 

The last time Netflix stock fell like a stone -- remember January 21? -- there was a quick response from hedge fund managers who saw the drop off as an opportunity to take advantage of the panic, to snap up a good stock for a bargain price and rake in the money later. Now, three months later, during Netflix’s latest share cratering, those earlier white knights have left the castle, and there doesn’t seem to be any replacements at the drawbridge, at least anytime soon.

Back in January, hedge fund Pershing Square and its chief Bill Ackman said they had bought 3.1 million shares of Netflix for about $1 billion, claiming he was “all in” on the streaming space and was ready to reap the profits once Netflix turned itself around, probably in the first quarter. At the time, Netflix predicted that it would add about 2.5 million global subscribers in Q1, substantially lower than in past Q1’s -- typically one of the strongest growth periods for the company -- but strong enough. A few days later, Netflix founder and co-CEO Reed Hastings said he bought $200 million of Netflix stock personally, showing his commitment to the company and the stock. 

Also: Netflix Comeback Could Take a While 

Fast-forward to earlier this week and Ackman sold his Netflix stake for a $450 million loss on April 19, and Netflix didn’t add 2.5 million global customers, it lost 200,000 of them. Adding insult to injury, the company said it would lose another 2 million subscribers in Q2. 

In a note to shareholders on April 19, Ackman said that while he and the Pershing team believe in Netflix’s management, its “enormous operating leverage” means that any fluctuation in the company’s future subscriber growth can impact value. 

“In our original analysis, we viewed this operating leverage favorably due to our long-term growth expectations for the company,” Ackman wrote.

“While Netflix’s business is fundamentally simple to understand, in light of recent events, we have lost confidence in our ability to predict the company’s future prospects with a sufficient degree of certainty,” he continued, adding that given its management’s track record, Netflix can still be a successful company and a good investment. “That said, we believe the dispersion of outcomes has widened to a sufficiently large extent that it is challenging for the company to meet our requirements for a core holding.”

In other words, Ackman and Pershing, like just about every other fund that invested in Netflix, believed that the subscriber growth train would never stop. Only a few years ago, analysts were predicting Netflix would have 300 million global subscribers by 2023. Now, analysts like Needham & Co. 's Laura Martin are wondering if 222 million (its current global tally) is the peak.  

Despite the irrational exuberance that fueled a lot of Netflix’s unprecedented run in the past few years -- its stock price more than doubled from $302.60 on November 18, 2019 to $700.99 on November 17, 2021 -- investors had to think, at least in the very back of their minds, that it couldn’t last forever. Like the booms and busts of past stock market bubbles -- tech in the 2000s, real estate in the mid-2000s, everything in the late 1990s -- it eventually has to come to an end. In the past week, Netflix stock has fallen 38%. Shares are down 63% since the beginning of the year. The ride, it seems, is over.

Who or What is to Blame?

To some analysts, the pandemic is partly to blame -- Netflix added nearly 55 million subscribers globally between 2019 and 2021, the height of stay-at-home orders that forced people indoors and in front of their TV sets. Broadband experienced the same slowdown after a booming two years -- Comcast and Charter alone added a combined 7 million high-speed data customers between 2019 and 2020 and just 2.5 million in 2021. Netflix was different because it kept spending money on content -- $15 billion last year, by some estimates -- had some of its most-watched shows ever during the pandemic and even though the North America market was pretty saturated (about 60% of pay TV households have a Netflix subscription), they were going to make it up in spades internationally.

But COVID was a global problem, and even international customers had more streaming choices in the last couple of years -- Disney Plus, for example, has about 46 million subscribers in India alone, a market that Netflix is just-now taking seriously. In the U.S., Netflix was becoming a victim of its own success. Couple that with very aggressive competitors and international instability -- Netflix suspended its Russian operation in March after that country’s invasion of Ukraine -- and it's no wonder that Netflix has had a tough go finding new customers. 

“In hindsight, COVID pulled forward Netflix to maturity in its oldest markets (North and Latin America and Western Europe),” wrote Evercore ISI Group analyst Mark Mahaney in a note to clients, adding that Netflix has about 60% penetration of North American broadband households, 80% when password sharing is counted. “It’s not easy to raise penetration beyond that level.” 

Netflix says it is going to crack down on password sharing and will introduce an ad-supported tier, but there are questions about how soon either of those can be implemented and whether it will make much of a difference. Wedbush Securities analyst Michael Pachter, a long-time bear on Netflix stock, told CNBC in March, when talk began to circulate that Netflix, like other streamers, would consider an ad tier, that it likely wouldn’t be big enough or fast enough to make that much of a difference. He added that Hulu has an ad tier that brings in about $10 per month per subscriber in advertising revenue. 

“The question is do they make more money at $10 per month for advertising or do they make more money charging $15.49 [for service]?” Pachter told CNBC. “I think it’s a push. …Five bucks, six bucks per month plus $10 advertising, that’s a push. What’s the point?”

Needham & Co.’s Martin believes that the ad-tier will help Netflix, but advertising alone won’t solve its problems. In an April 20 research note, Martin wrote that in addition to a lower-priced ad-supported version, Netflix needs to add sports and news content, bundle the service with other products and/or purchase a large film or TV content library. 

“Every streaming competitor does one or more of these things, which puts Netflix at a structural competitive disadvantage, we believe,” Martin wrote. “Another alternative is for Netflix to acquire other companies that provide one or more of these attributes, as it has done for video games.”

Borrowing For Growth 

Pachter has been a harsh critic of Netflix's seemingly endless habit of continually increasing its content spend -- $17 billion last year, according to some estimates, compared to $4 billion for Disney Plus -- by borrowing. Increasing leverage was OK'd by Wall Street as long as the subscriber growth was strong. When it started to trail off, then investors began to worry.

Netflix still has a junk-bond rating on its debt, but it was expected to move into investment grade territory soon. Moody’s Investors Service raised Netflix’s debt rating two notches to Ba1 in April 2021, based on revenue and subscriber growth, and the belief that as that continued, Netflix would begin to report positive, sustained free cash flow soon. Having steady, sustainable free cash flow would allow Netflix to take its leverage ratio below 2.5 times, consistent with its current rating.    

Moody’s is still optimistic that Netflix will be able to pull itself out of the hole. 

“We still see the company continuing to build on its significant scale to penetrate the world's 800 million pay TV homes and the global addressable homes of over 1.5 billion (both excluding China), sustaining competitively low cost per viewing hour leadership, growing average revenue for member, and reinvesting in even more content as it benefits from this virtuous cycle,” Moody’s SVP Neil Begley wrote. 

But that confidence does not come without caveats. In his Friday note, Begley warned that the causes of the Q1 losses and the “potentially sharp” first half declines in subscribers are still there: price increases; competition; and customers that are taking a break from in-home binge-watching as COVID restrictions are lifted. Moody’s said it will continue to monitor those conditions. 

Not Such a Big Surprise 

Pachter had warned that this day would come for years. In a 2019 article by then-Bloomberg columnist Joe Nocera, the analyst remembered being asked to justify his $183 price target on Netflix shares when the stock was already trading at $368 each. He said to justify his price target, Netflix would have to show a $2 billion improvement in free cash flow and have around 300 million subscribers paying $20 per month. Pachter believed Netflix could get there in a competition-free environment, but that wasn’t the case.

“What will happen if competitors are charging $7?” Pachter asked.

Well, that day is here. Hulu raised the price of its ad-supported service to $6.99 monthly in October, Disney Plus raised its price to $7.99 per month earlier this year and Apple TV Plus and Peacock’s premium tier are still at $4.99 per month. Netflix upped the monthly charge for its standard service to $15.49 per month in January.

Back in 2016, Nocera wondered in an article he wrote for the New York Times what would happen if the Netflix hamster wheel of constantly escalating spending to fuel subscriber growth ever slowed down. In his mind, it would lead to a lower stock price, which would increase the cost of debt, forcing Netflix to increase prices or cut back on costs or both. In a New York Times article at the time, he wrote that it would turn the “virtuous circle” of increased spending fueling increased subscriber growth, into a “vicious circle.” 

For years, Netflix was the bratty younger brother in the media business, making fun of its slower, older and less stylish cousins, while spending the equivalent of dad’s money like it was going out of style. That behavior was tolerated, even encouraged by lenders and Wall Street as long as it kept up its blistering growth pace. Now that growth has appeared to stop, or at least slowed considerably, Netflix’s hijinks just aren’t so cute anymore. 

But probably more important is that despite the ups and downs of the streaming market, Netflix was always a pretty predictable company. Sure, subscriber growth would fluctuate, but in the end it would always be higher than before. Today, a hedge fund that three months ago thought it was a good move to take a $1 billion plunge in buying Netflix stock, now thinks it’s better to take a $450 million bath just to get out of the water. ■

Altice USA shares fell for the third straight trading day on Monday, slipping nearly 6% after analysts at Credit Suisse and Raymond James downgraded the stock.

Altice USA shares closed Monday at $19.38 each, down 5.8% or $1.20 per share, after reaching another 52-week low of $19.21 per share earlier in the day. Altice USA shares are now down 23.3% since Sept. 23, when CEO Dexter Goei said at the Goldman Sachs Communacopia conference that Q3 broadband additions for the company would be negative.

Several analysts have adjusted their estimates on Altice USA since the Goldman conference, and on Monday, Credit Suisse analyst Doug Mitchelson wrote that he was concerned about the company, adding that he was wrong about Altice USA’s broadband competitiveness and according to reports said that he expects the company’s new investment strategy to “take at least several quarters, if not longer, to begin bearing fruit.”

He lowered his rating on the shares to “neutral” from “outperform” and reduced his 12-month price target on the stock to $24 from $46 per share.

Raymond James media analyst Frank Louthan IV also noted Altice USA’s decision to move away from share repurchases -- which he saw as a key component of its valuation -- as a reason for downgrading the stock from “outperform” to “market perform” on Monday.

     . 

A few days after Comcast chief financial officer Mike Cavanagh’s admission that the No. 1 cable operator’s broadband growth trajectory was “a little bit” light in the latter part of August sent cable stocks into a tailspin, some analysts that cover the sector tried to inject some context into the  conversation, with most stressing that investors should remember that while broadband growth is expected to slow, it’s still growing.

Cavanagh, speaking at the virtual BofA Media, Communications & Entertainment conference Tuesday, said that Comcast had seen “a little bit of a slowdown” in broadband growth in late August, which sent the stock down 7.3% to $55.59 for the day. Comcast’s slide affected other cable distribution stocks that day. Charter Communications shares closed at $761.86, down about 4%, or $31.21 each on Sept. 14, while Altice USA shares fell 3% (82 cents) to $26.61 and Cable One dipped 4.1% ($81.84 each) to $1,908.16 per share. 

Stocks fared a little better in the next two days. Comcast closed at $57.28 on Sept. 16, gaining back about 3% of its losses, while Charter closed at $765.24, Altice USA at $25.94 and Cable One at $1,963.85 per share. 

It didn't help that Cavanagh’s Tuesday comments were a little confusing. He basically said at the conference that if Comcast were to add together its Q2 2021 and Q3 2021 broadband additions, they would be about 10% better than its combined Q2 2019 and Q3 2019 additions. That comes after the company had increased its full year guidance during its Q2 earnings call, saying that it expected broadband additions in the mid-teens percentages in 2021. 

Cavanagh added that Comcast still expects full year 2021 broadband additions to be ahead of 2019.

In a research note Sept. 15, Bernstein media analyst Peter Supino estimated that the Sept. 14 stock slide cost Comcast about $20.1 billion in equity value, adding that Q3 broadband performance will likely be about 100,000 subscribers behind analysts’ consensus estimates. 

Supino pointed out that 100,000 fewer subscriber additions is just a small fraction of Comcast’s total 31.4 million broadband subscribers.

So analysts, who had anticipated a second quarter growth slowdown that didn't come -- Charter Communications also exceeded Q2 expectations and at that time had to redo their estimates -- will have to to rethink them again.

Supino wrote that he discussed the market with several of the largest ISPs, adding those conversations had three common threads -- broadband churn generally remains low and stable, gross additions are below normal and there is no apparent reason for a material shift in Comcast's share of gross adds; and the pandemic has changed the seasonality characteristics of Q2 and Q3.

“With fewer students in residence at colleges, historical models may overestimate 2Q disconnects and 3Q reconnects,” Supino wrote. “With Comcast's geographic diversity and heavier exposure to college towns, we think college schedules are the bigger change factor. This explanation also aligns with the timing of the deviation from plan.”

Barclays Global Research media analyst Kannan Venkateshwar wrote in a Thursday research note that while COVID helped drive big gains in 2020 as the virus forced most Americans to work and learn from home and as cities and towns are beginning to open back up, the pandemic is making visibility for the sector difficult. 

“This volatility and lack of visibility over a relatively short time horizon appears to have been driven by a change in connect behavior due to Covid, with weaker back to school connect trends and less seasonal disconnect/connect 2Q/3Q activity,” Venkateshwar wrote. “However, there are other factors such as non-pay disconnect trends which have still not normalized, and with the lapsing of stepped-up unemployment benefits, disconnect moratoriums, and eviction moratoriums, there could be additional factors to consider in Q4.”

Venkateshwar estimated that Comcast would add about 1.37 million broadband customers in 2021, below the 1.8 million it added in 2020 and slightly ahead of the 1.32 million added in 2019. For Charter, which added 2.1 million broadband customers in 2020, the decline will be a little more dramatic -- Venkateshwar estimates it will add 1.37 million customers in 2021, ahead of the 1.28 million added in 2019. Altice USA is expected to add less broadband customers in 2021 (3,700) than in 2019 (7,200). The company added about 134,000 broadband customers in 2020.

The Barclays analyst also expects the downward growth trajectory to continue in 2022. He estimated that Comcast would add 1.1 million broadband customers in 2022 and Charter should add 1.2 million. Altice USA is expected to do a little better in 2022 with 6,500 broadband additions, but they will still be below 2019 adds of 7,200. 

Altice USA chief operating officer Hakim Boubazine‘s decision to resign from the company last week had some media analysts searching for hidden meaning, with Bernstein’s Peter Supino doubting that CEO Dexter Goei, who will take over Boubazine’s duties, can right the ship while concluding the company, often seen as a takeover target, is undervalued.

Boubazine, who has run several businesses for Altice N.V. founder and chairman Patrick Drahi over the years, and joined Altice USA shortly after Drahi first entered the U.S. cable market in 2015, resigned unexpectedly on Sept. 9, agreeing to stay on in an advisory role through the end of the year. In a press release, Altice USA said Goei will assume Boubazine’s duties, in addition to his own as CEO, immediately. 

In a research note, Supino wrote that Boubazine’s departure is significant because he ran so many parts of the business. According to its website, Boubazine was in charge of product, marketing, technology, engineering, and operations functions as COO. His departure also comes at a time when Altice USA has “badly underperformed” its peers, according to Supino, adding just 8,000 organic broadband customers over the past three quarters. 

“Operational trouble seems to run deeper,” Supino wrote, adding that analysts’ consensus cash flow forecasts for Altice USA began declining in 2018, and in the second half of 2019, the company struggled with its OSS/BSS transition and the launch of its wireless service, Altice Mobile. 

Supino also saw problems with Altice USA’s marketing decisions, adding that he found it “odd” that the company focused on price maximization in 2019 through the roll out of its “Price for life’” campaign.

More recently, the company decided to rebrand Suddenlink as Optimum because ”(in our assessment) Suddenlink is loathed by too many consumers and not because Optimum is known to any of them,” Supino wrote.  

Adding to the pressure is that Altice USA stock is down about 24% year-to-date, and there are some doubts as to how effective Goei, an investment banker by training, will be in running the telecom side of the business.

“With roots in investment banking, we are not convinced that Goei has the background to solve Altice’s operational problems,” Supino wrote. But the analyst still recommended the stock, not necessarily because he sees a turnaround — although he called Goei an “energetic leader with an enormous stake in the company” — but because he expects Altice USA to be a takeover target. 

“While our most important 2H21 estimates remain below consensus, we continue to recommend ATUS because we believe the business is structurally sound, under-valued, and strategically appealing to several larger, acquisitive companies,” Supino wrote.

Altice USA has been tossed around as a potential takeover target ever since it came on the scene. With attractive assets in the New York metro area — mainly the Bronx, Staten Island and New Jersey and Connecticut systems it purchased from Cablevision Systems in 2016 — Altice USA could fit well with Charter Communications and Comcast, each of which have substantial assets in those markets. Suddenlink systems in the Midwest could be seen as attractive to operators like Cox Communications and Cable One.

In a research note earlier this month, MoffettNathanson principal and senior analyst Craig Moffett made the case for taking Altice USA private, pointing to its declining share price and undervalued assets. In that report Moffett opined that Altice USA could sell off its Suddenlink systems for around $22.7 billion and take its Optimum unit private for about $10.8 billion. 

So far Altice USA has been a buyer not a seller, doing mainly small deals like its purchase of Service Electric Cable of NJ in July 2020 for $150 million, and its April buy of North Carolina fiber company Morris Communications for $310 million. 

Also Read: Altice and Cogeco: He’s Just Not That Into You 

Last year Altice USA made its biggest M&A splash, teaming up with Rogers Communications in an $8 billion bid for Canadian operator Cogeco Communications and its U.S. cable unit Atlantic Broadband. That bid, where Altice would acquire Atlantic Broadband and Rogers would take the rest, was soundly rejected by Cogeco, and the unsolicited bid was abandoned in November 2020. 

Influential media analyst Craig Moffett took a deep dive into Altice USA Wednesday, issuing a 39-page report that says with broadband growth behind its peers and doubts that its rural markets can take up the slack, one way to unlock its value would be to take the company private. 

Altice USA stock has been battered over the past few months, dropping more than 20% since July 28 when it released Q2 results that showed zero broadband subscriber growth at a time when its larger peers are watching their high-speed data rolls rise. In his report, Moffett, principal and senior analyst at MoffettNathanson, noted that despite that sluggish performance, Altice USA’s sum-of-the-parts valuation indicates that Wall Street perhaps has the cable company all wrong. 

While Moffett admitted that Altice USA has a “broadband pricing problem,” that there is some doubt that efforts to boost broadband customers in its more rural Suddenlink footprint will offset subscriber declines in its more metropolitan Optimum footprint, even conservative valuations of its four major geographies indicate a much higher value for the company than Wall Street has assigned. 

“There’s a price for everything … and, to put it bluntly, this ain’t it,” Moffett wrote. “Altice’s current valuation is simply too cheap, and by a huge margin.”

The notion of going private at latest appeared to be attractive to some investors. Altice USA shares were up nearly 4% ($1.05 each) in early trading Sept. 8 to $28.19 per share. The stock was priced at $27.94 at 12:57 p.m. Wednesday, up 3% or 81 cents each.

Given the high valuations for recent private cable deals, including Altice’s own  purchase of Service Electric Cable of NJ  (10 times consensus cash flow) and its March  agreement to buy North Carolina broadband provider Morris Broadband (24 times), Moffett assigned an 11.7 times multiple to Suddenlink, a 10.1x  multiple to legacy Optimum systems and a 14.6 times multiple to its Lightpath division, pushing the combined company’s estimated trading multiple to 10.8 times forward looking cash flow. At that multiple, Moffett estimated that Altice USA stock should be priced at $51 per share, nearly double its Sept. 7 close of $27.25 each. 

Moffett added that to take Altice USA private, the company would have to pay a premium to its current stock price, but at $30, $35, $40 or even $45 per share, that option would appear to be a bargain.

Going private is nothing new for cable operators, and usually is driven by the perception that the public market is severely undervaluing assets. Mediacom Communications was the last major publicly traded cable operator to go private in 2011, and has had tremendous success as a private company. In 2004, Cox Communications went private in a deal valued at $8.5 billion, and hasn’t looked back since. 

The analyst added that in one scenario, Altice USA could sell off its Suddenlink division at an 11.7 times multiple (implying a selling price of $22.7 billion) and Lightpath for 14.6 times cash flow (implying a $1.57 billion sale price), while retaining the Optimum business by purchasing the remaining public float. Moffett estimated that at a $35 per share take out price and the sale of Suddenlink and Lightpath, Altice USA could take itself private — debt free — for about $7.9 billion. At $45 per share, the total cost would rise to $10.3 billion.

Moffett stressed that going private is not something he is suggesting that Altice USA will do, but is something they could do. And there are also several possible iterations of the going private option, he wrote.

“The takeaway here is that, even with a meaningful premium, the current valuation is so  cheap that it creates enormous optionality,” Moffett wrote, adding that Altice USA has been doing its own “modified take-private” for years.

Moffett noted that since separating from Altice N.V. in 2018, Altice USA has made about $7.7 billion in share repurchases, reducing its total shares outstanding by about 38%. Excluding the ownership stake held by Altice N.V. chairman Patrick Drahi, and Altice USA has reduced  its public float by more than half.   

“Indeed, it may be the case that Drahi would conclude that it is more attractive to simply stay the course and retire shares until the remaining float is so small that almost any premium paid to complete the job would be financially immaterial,” Moffett wrote. He estimated that Altice USA, if it maintains its leverage target of 4.5 times to 5 times cash flow, would buy back about $8.5 billion of its stock through 2025.

“Altice could go private, sell select assets — we highlighted Suddenlink just because we suspect it would be so easy to sell — and own what's left for... well, for nothing at all,” Moffett continued. 

Charter Communications shares fell as much as 3.1% in early trading Monday after Bernstein media analyst Peter Supino downgraded his rating on the stock from “out-perform” to “market-perform,” citing competitive concerns and already-baked growth estimates in the share price.  

Charter shares were down as much as 3.7% ($27.53 per share) to $708.94 each in early trading Monday (July 12). The stock closed at $719.80 per share, down 2.3%, or $16.67 each on July 12.

In his report, Supino noted that he remains convinced of Charter’s “business plans, financial strategies and structural competitive position in most of the US,” adding that its growth trajectory in the medium term shouldn’t change.

But the analyst is worried about the growing competitive threat from T-Mobile and AT&T Fiber, as well as the possibility of a stricter regulatory environment. 

T-Mobile is aggressively rolling out fixed wireless high-speed internet access across the country, and expects to have 7 million to 8 million residential internet customers by 2025, implying 1.5 million additions per year.

Also Read: Analyst: After a Strong 2021, Cable’s Broadband Trajectory Could Reverse in 2022 

While several analysts, including Supino, have noted that fixed wireless is technologically inferior to cable broadband service, he sees it as carving out a niche in the market with customers that are looking for lower-cost, “good-enough” broadband access. 

“We believe the natural segmentation of the broadband market will provide more consumers with an opportunity to pay a lower price for ‘good enough’ broadband,” Supino wrote. “While the telco networks are absolutely constrained in terms of the number of residential customers they can serve, we believe the 5G technology and MHz expansions of mobile networks create a niche business opportunity for the ‘Big 3,’ led by T-Mobile as the first-mover on the more scalable, economical mid-bands.” 

AT&T’s recent plans to spin-off DirecTV with TPG and a separate merger between its WarnerMedia programming assets and Discovery Inc.,  will provide added financial stability to the phone company, Supino wrote. That should help AT&T Communications chief Jeff McElfresh achieve his stated goal of transforming AT & T into the country’s “premier broadband connectivity provider, period.” 

Other analysts have warned of a possible slowdown in the  broadband market, and Supino estimated that Charter, which added a record 2.1 million high-speed data customers in 2020, will see that growth slow substantially to 1.3 million in 2021 and 1 million in 2022. 

On the regulatory front, reports that Gigi Sohn, once a top adviser to former FCC chairman Tom Wheeler, is in the running to become the next chair of the agency, and the indecision around the long-term role of acting FCC chair Jessica Rosenworcel make the possibility that Sohn could ultimately lead the agency closer to reality. That, according to Supino, could mean that net neutrality and the reclassification of broadband as a Title II telecom service could rear its head once again. 

“As chairwoman, we think Sohn would probably pursue a form of broadband price regulation,” Supino wrote. “Were Sohn appointed, we would expect cable stocks to tumble. In such a scenario, we would expect Charter to decline more than Comcast given its much higher mix of EBITDA from internet service provision.”

Supino fully expected some backlash from the decision to downgrade Charter stock, and added that he expects the company to have strong cash flow and free cash flow growth in 2022 and beyond. But the potential volatility in the broadband segment is too great to ignore.  

“Charter's valuation multiples, while elevated, exist in a low interest rate, secular growth hungry world which has bid up nearly all valuations,” Supino wrote. “A seller of Charter who is in the business of managing stock portfolios must buy another stock … In the end, as is so often the case, our business model defines the decision. While we advise clients seeking to be right for the next 5 years and others focused on the next 5 months, Bernstein's price target horizon is 12 months. And on that horizon, we think Charter's stock looks ‘fair but full.’ For each unit of potential upside, we see about as much downside.”  

B Riley media analyst Daniel Day raised his 12-month price target on WideOpenWest to $30 per share from $28, adding in a note to clients that the overbuilder’s decision to sell off some assets for about $1.8 billion will lead to more robust cash flow growth and better position it for continued network expansion.

WOW said Wednesday that it would sell systems in five markets -- Cleveland and Columbus Ohio; Anne Arundel, Maryland; Chicago; and Evansville, Indiana -- to Atlantic Broadband and Astound Broadband for $1.786 billion. The deal is expected to close in the second half of the year.

Day, who earlier in the week raised his target on WOW to $28 from $26 per share, said the deal warranted another price increase, based on new projections for cash flow growth. In his July 1 note, Day said that while his earlier price increase took potential asset sales into consideration, the size of the actual deal “was a surprise to us.”

WOW has said it will use the proceeds from the deals to reduce leverage from its current 5 times cash flow to about 2.5 times, as well as fund ongoing edge-out and greenfield expansion to its network.

WOW stock soared on news of the deal, rising as much as 17% ($3.09) to $21.34 per share on June 30, before closing at $20.71 each, up 13.5%. Shares were up about 1% in early trading July 1 to $20.92 each. 

“In our view, yesterday's positive market reaction to the announcement was warranted, and we see continued upside for shares,” Day said in his July 1 note to clients. He based his new price target on the shares on revised 2022 cash flow estimates ($320 million versus his prior estimate of $288 million) and a boost in the assigned enterprise value/EBITDA multiple on the stock to 10.5 times from 10 times. 

Day had pointed out in an earlier note the disparity between private and public valuations of cable, noting that the WOW deal is valued at about 11 times cash flow while the company’s public trading multiple is about 8 times. Other past private cable deals have been valued between 12- and 15- times cash flow, he noted.

WOW is expected to use its nearly $1 billion in Net Operating Loss carry-forwards to offset the tax hit on the sales -- Day estimated that net proceeds to the company would be about $1.4 to $1.5 billion.

Day also was encouraged by the increased penetration rates at the systems it will keep -- WOW estimated that after the deal, overall penetration of services will rise to 29% from 26%. That, according to Day, likely means that WOW is keeping properties where it is more “incumbent-like” instead of an overbuilder, which should also lead to further multiple expansion. 

“By pursuing edge-out and expansion strategies in markets that have higher expected penetration rates, WOW lowers the capex associated with each new inorganic subscriber added,” Day wrote.

As a result, Day is lowering his capex estimates for 2022 to $155 million from $225 million.       

Discovery and ViacomCBS shares dipped about 3% in early trading Tuesday after Barclays Research media analyst Kannan Venkateshwar lowered his ratings on the stocks to “Underweight,” claiming the expected gains from the companies’ streaming endeavors are already baked into the share price. 

ViacomCBS shares were down as much as 4.3% ($1.95 each) to $43.34 per share in early trading Jan. 19, while Discovery dipped about 2.9% ($1.07 cents each) to $35.69 earlier in the day. The stocks began to rise slightly as the morning progressed -- Discovery finished the day at $36.15 per share, down 1.7% (61 cents), while ViacomCBS closed at $43.75, down 3.4%, or $1.55 each.  

Discovery launched its much-anticipated Discovery Plus streaming product on Jan. 4, and ViacomCBS said it would debut its latest online endeavor-- Paramount Plus -- on March 4.  Both stocks have risen substantially over the past three months -- Discovery shares were up 76% prior to Tuesday and ViacomCBS was up 66%. In a research note. Venkateshwar said any expected gains from the new products have already been realized.

Venkateshwar attributed the earlier gains to better near-term visibility regarding fundamentals, events like Discovery’s recent Investor Day and changing investor perspectives regarding the success of the growing number of streaming services. 

“However, we believe these catalysts are more than adequately priced in at present levels,” Venkateshwar wrote. 

The analyst continued that both stocks are trading around 6% of their unlevered free cash flow yields and are trading at multi-year highs on 1-year forward EV / EBITDA while some financial estimates have been lowered. He noted that 2021 free cash flow estimates have come down 10% for Discovery and by 18% at ViacomCBS. 

“While we understand the optimism around streaming, neither Discovery Plus nor Paramount Plus is a new product and have been available for many years under different brands, with limited success,” Venkateshwar wrote. 

He added that while Disney Plus is not likely to erode its parent’s linear subscriber base, that may not be the case for smaller programmers like Discovery and ViacomCBS. 

“We believe that as legacy media companies rely more on ISPs for distribution, these data service providers will be more incentivized to drop legacy bundles in favor of streaming bundles due to more accretive economics,” Venkateshwar wrote. “In addition, we believe streaming distribution models presently being tried are not static and are likely to put subscale services at a disadvantage post their promotional periods. This is why this could be the last year that media companies can try and change the streaming narrative, given declining cash flows, especially in the case of ViacomCBS. Lastly, even if we assume significant acceleration in growth in the coming five years for both services and use Netflix’s multiple to value streaming at Discovery and ViacomCBS, there isn’t much upside vs present stock levels. Therefore, we find the optimism around some of these streaming launches like Discovery Plus to be premature.”

World Wrestling Entertainment stock continued to fall last week, even as chairman and CEO Vince McMahon repeatedly hinted that a deal concerning its WWE Network streaming service could be imminent.

WWE stock was down nearly 30% between Jan. 30, when it announced the firing of co-presidents George Barrios and Michelle Wilson, and its Feb. 6 earnings results. Although WWE reported some of its strongest financial growth ever in Q4 (revenue was up 18% and cash flow up 67%, mainly on the deal with Fox for WWE SmackDown engineered by Barrios and Wilson), investors were more concerned with the future. The scripted sports company’s guidance for 2020 was considerably lower than what analysts had expected. WWE said adjusted OIBDA, a measure of cash flow, would be in the $250 million to $300 million range for 2020, well below consensus estimates of $390 million.

That low guidance doesn’t take into account expected carriage deals in India and the Middle East but nonetheless spooked investors, who drove the stock down as much as 15% in early trading Feb. 6, ending the day at $44.50 each, down 9%. The slide continued on Feb. 7, with the stock falling another 4.2% to close at $42.62.

While investors continued to worry about the management shakeup and the reduced guidance, they also were concerned whether WWE was ready to throw in the towel on its streaming service, WWE Network. Launched in 2014, WWE Network peaked at about 2.1 million subscribers in 2018. In Q4, that base had dropped to about 1.5 million. Initially, some critics feared the streaming service would cannibalize its other businesses — particularly pay-per-view — something the company said it would strive to avoid. Now, with declining membership, that may have changed.

WWE said prior to the call that it was evaluating strategic alternatives for WWE Network, which usually means it is pursuing a sale. That is an option, but McMahon said the company could also keep it as is, or form a partnership. He repeatedly interjected during a conference call with analysts that “the majors” are “clamoring” for WWE content. If the company did decide to do a licensing deal, he said, it could announce it before the end of next month.

“We’d be announcing that deal, if we go that way, in the first quarter,” McMahon said. “That’s how far along we are.”

McMahon also was open to the idea of an ad-supported version of WWE Network. He said if the decision is to keep the service as is, WWE would consider pursuing ads. That makes sense, especially since The Walt Disney Co. revealed in its fiscal Q1 results that streaming service Hulu generates about $13 in month revenue per subscriber per month for a $5.99 service.

While Hulu has an $11.99 per month ad-free option, Disney chief financial officer Christine McCarthy said on the company’s earnings call that most of the service’s 30.5 million subscribers opt for the ad-supported service.

But WWE content has been on the skids in the past several months, with ratings down and fans complaining of tired storylines. Several script writers have left the fold and McMahon has vowed to inject more excitement into the programming. On the conference call, he mentioned a culture change at WWE — to become more inclusive — and pointed to changes that have already been made to bring in new talent and improve ratings.“You can see there is growth there,” McMahon said, adding that past problems were exacerbated by a rash of injuries to top talent last year.

FBN Securities media analyst Robert Routh said that he believes the panic around WWE is a bit overdone, adding that ratings have started to improve, partly because it has a broadcast outlet (Fox) reaching a larger fan base. And he expects that McMahon has a deal up his sleeve.

“It sounds like he [McMahon] has something transformational that he could do if he wants to but he hasn’t decided yet. The question is who is it that might have offered him a ton of money to own WWE Network or to bundle it with what they have?” Routh said, adding that WWE content could be attractive to streaming services like Hulu, Netflix or NBCUniversal’s Peacock.

‘SmackDown’ Ratings Down

In a blog post, LightShed Partners media analyst Brandon Ross said viewership for SmackDown on Fox has been light, averaging about 2.4 million weekly viewers instead of the 3-million-plus most analysts expected.

Righting the WWE ship will be critical over the next three years, Ross wrote, because that’s when Monday Night Raw, which airs on NBCU’s USA Network, and SmackDown enter their next renewal cycle. With the shift in overall TV viewership toward streaming, the analyst predicted total pay TV subscribers could be reduced to as few as about 70 million, substantially reducing the WWE’s negotiating leverage.

“Vince McMahon, the pressure is on,” Ross wrote.

VINCE’S DILEMMA

WWE chairman and CEO Vince McMahon laid out the future of WWE Network to analysts:

1. Maintaining the Status Quo: WWE continues to run the streaming service “as is,” with the possibility of adding advertising, a move McMahon said he would “definitely consider.”

2. Adding ‘Free’ and ‘Enhanced’ Tiers to WWE Network: A free option was quietly introduced in December, offering nonsubscribers access to some short-form content, and McMahon said a pricier “enhanced” tier also could be on the table. WWE Network costs $9.99 per month.

3. Licensing WWE Network content to ‘the majors’: WWE Network has a ton of pay-per-view and library content that would likely be attractive to several networks and OTT providers. McMahon said that there is high interest from “the majors” for WWE content, and the company could potentially announce a deal before the end of the first quarter (March 31). “That’s how far along we are,” he said.

Cable One stock, the top performer in the distribution sector in 2016, took a slight dip out of the stratosphere after influential media analyst Craig Moffett lowered his rating on shares to “sell” — with a $408 target price. The cable operator, riding a wave of hefty price increases and plummeting programming costs, is about to hit a wall, in Moffett’s view.

Cable One shares declined about 5% ($33.22), going from $619.66 on Jan.3 to $586.44 on Jan. 5, the day after Moffett’s report came out.

It all underscores the stock’s remarkable rise. Cable One stock rose 43.4% in 2016 — or nearly $200 per share — ascending from $433.66 to $621.73 at year’s end, pumped up by speculation that it would be the next takeover target in the consolidation wave after Charter Communication’s $80 billion acquisition of Time Warner Cable.

European telecom company Altice N.V., which spent more than $25 billion on purchasing Suddenlink Communications and Cablevision Systems in the past year, has been singled out as the most likely Cable One buyer, although private equity and other smaller players could enter the fray too.

IRRATIONAL EXUBERANCE?

Moffett said that while it might seem strange to downgrade CableOne’s stock right around the time that Altice is expected to spin off a minority interest in its U.S. operations — Altice USA — to the public, he believes the takeover premium has been long baked into Cable One’s stock price.

What concerns Moffett and other analysts is how Cable One has been able to maintain its growth trajectory as customer growth has eroded rapidly.

Cable One embarked on a broadband-only strategy in 2012. The midsized operator has taken a hardline stance against rising programming costs, dropping Viacom’s networks in 2014, and instead has focused on high-speed data service, offering speeds of up to 1 Gigabit per second in some markets.

But with lower costs — programming expenses dropped 10% in 2014, its first year without Viacom — have come heavy subscriber losses. Cable One shed 20% of its video customer base in 2015 (about 87,000 subscribers) and while those numbers have improved — it lost 13.5% of its video base in Q3 2016 — they are still well above those of the operator’s peers.

Overall, the pay TV market is losing video customers each year. But cable has been improving on its losses and could post its first positive growth year in a decade in 2016.

Cable One has said publicly that its strategy is unorthodox, but it believes it is on the right path.

“While this strategy runs contrary to conventional wisdom in the cable industry, which puts heavy emphasis on video customer counts and maximizing the number of PSUs [primary service units] per customer by bundling services, we believe it best positions us for long-term success,” Cable One said in its 2015 annual report. “For us, success in winning and retaining residential data and business services customers are far more important metrics than the number of triple-play customers we have.”

So far the approach appears to have paid off. Cable One has maintained steady revenue and double-digit percentage increases in cash flow in 2014 and 2015, and is expected to have another strong year in 2016. And though Moffett commended the company for its performance so far, he also said he believes that time may be running out.

Moffett said “more than all” of Cable One’s growth has been due to price increases; it imposed a hefty 10% hike to broadband charges in 2015 and it’s on the verge of having to increase fees again to a customer base that is, overall, the least affluent compared to the customer groups served by other top MSOs.

“We don’t project that Cable One’s EBITDA will actually decline in 2017, but we do project that EBITDA is about to hit a wall,” Moffett wrote, adding that the expected deceleration comes at a time when the stock is trading a premium multiple (11.7 times cash flow) to its competitors.

A PRICE TOO HIGH?

Moffett conceded the high multiple is largely due to takeout speculation, but he also noted that it is not only higher than the multiples of much bigger companies (Comcast trades at 7.6 times and Charter at 9.9 times) but outpaces the premiums paid for Cablevision (10.1 times) and Suddenlink (10 times) by more than a full turn of cash flow.

Cable One’s strategy also may throw a wrench into the one thing that most investors have bought the stock for: a potential acquisition. Moffett notes that falling subscriber rolls mean less opportunity for a potential buyer.

“Even if de-emphasizing video was the right decision for Cable One on a standalone basis, any potential acquirer would naturally view Cable One’s video subscribers through the lens of their own programming costs, not Cable One’s,” Moffett wrote. “By shedding so many video subscribers, Cable One has foregone a tremendous amount of potential synergy for an acquirer.”

Viacom executive chairman and CEO Philippe Dauman, taking more than his fair share of criticism over the past several months, finally had enough, lashing out against what he called the naysayers and publicity seekers who doubt the company’s future and his leadership on a conference call with analysts to discuss fiscal Q1 results.

“In conclusion, I want to address the speculation about Viacom and our future. Our outlook and the facts have been distorted and obscured by the naysayers, self-interested critics and publicity seekers,” Dauman said on the call. “We will not be distracted or deterred as we build for the bright future ahead of us. As executive chairman and CEO I will continue to work tirelessly to secure that future and will leave no stone unturned, either tactically or strategically. Sumner and I have a more than thirty year history side-by-side building his media empire. He and the board of Viacom believing in my abilities and my character have entrusted me with weighty responsibilities. None of which are inconsistent or incompatible. My singular objective is to protect and build value for all of Viacom's shareholders and in doing so for all the beneficiaries of Sumner's trust who not only include the descendants of his daughter but also those of her brother. Finally, let me be absolutely clear, I could not be more focused on getting Viacom stock price back to the much higher level it enjoyed under my leadership just a short time ago. No one should doubt my resolve or the resolve of our entire management team to make that happen.”

Viacom’s stock was down 45% in 2015 and Dauman is right in that the shares have traded as high as nearly $90 each in 2014, well into his tenure. But in some respects that makes the decline of the stock in the past two years even harder to swallow – at $35.50 per share in afternoon trading Tuesday, Viacom stock is more than $50 per share (about 60%) below its $88.48 per share close on Feb. 14, 2014. While other stocks in the programming sector have taken big hits, none have been the size of Viacom’s.  In fairness, a lot of that could also be due to Viacom’s target audience – almost exclusively kids, teens and young adults – who have a greater tendency to watch content on multiple platforms.

In the meantime, Dauman has faced harsh criticism as Viacom stock has faltered, its ratings and viewership have continued to erode and as questions concerning succession after founder Sumner Redstone dies continue to weigh on the company.

Redstone passed his executive chairman title to Dauman last week  – he has done the same with CBS CEO Les Moonves for his other media holding, CBS– a move that was endorsed almost unanimously by Viacom’s board of directors. The lone dissenter – board member, vice chair and Redstone’s daughter Shari Redstone – had released a statement prior to his appointment that she hoped the board would select a chairman without ties to the family. When Dauman, a longtime friend and associate of Sumner Redstone (and his current healthcare agent) was selected, Shari said through a spokesperson that she would continue to advocate for the best interest of shareholders.

From the looks of Dauman’s statements today, that won’t be a one-sided fight.  

Charter Communications shares rose $4.65 each (3.02%) in early trading Tuesday after Canaccord Genuity analyst Gregory Miller raised his rating on the  stock to “Buy,” adding that he expects the mid-sized market cable operator to benefit from the pending Comcast-Time Warner Cable merger.

In his note, Miller expects Charter to report strong Q4 results Thursday (Feb. 5), growing total revenue and cash flow by 7.8% and 6% respectively. Miller also predicts Charter will lose about 10,000 video customers in the period, finishing the year with 4.15 million customers.

“We believe strategic initiatives taken over the last year have created a solid foundation for future revenue and EBITDA growth, while declining capital intensity following a 2014 marked by elevated investment should enable more significant free cash flow growth in 2015 and beyond,” Miller wrote.

Miller also is confident that the Comcast-Time Warner Cable merger will pass regulatory muster, meaning that Charter will receive about 1.4 million additional customers as a result of previously announced swaps, sales, and spinoffs after the close of the deal.

“Despite concerns over much-speculated Title II-based broadband rules about to be released by the FCC, we continue to believe the deal will close and the most onerous provisions of Title II forborn,” Miller wrote.

Even if the deal doesn’t go through, Charter is in the best position as a potential acquirer of TWC or of other cable operators, Miller wrote. His “buy” rating also carries a $182 per share 12-month price target, an 18% premium to Charter’s $154 per share close Feb. 2.

Charter shares rose as much as $4.72 (3%) each to $158.72 per share in early trading Tuesday. The stock was trading at $158.65 (up $4.65 each, or 3.02%) per share at 1:18 p.m.