Bernstein media analyst Peter Supino lowered his price target for Altice USA to $35 per share, from $38 each on Friday, a day after the stock hit a new 52-week low and amid talk that the company would end the year with negative broadband subscriber growth.

Supino has been a proponent of Altice USA either selling or going private and other analysts have made the privatization case as well. In his Friday note, Supino wrote that Altice’s markets -- the New York metro area and the Midwest -- and its commitment to building fiber make either decision attractive.

Supino’s report comes a few days after Altice USA CEO Dexter Goei said at the UBS Global TMT Virtual Conference that it is possible the cable operator will report negative broadband customer growth in Q4 -- it lost 13,000 high-speed data subscribers in Q3 -- and could end 2021 on a negative note. 

Supino’s new price target -- he maintained his “outperform” rating on the stock --  is still more than double Altice USA’s current stock price. On Dec. 9 the stock hit a new 52-week low of $14.78 per share and was trading at $15 each in afternoon trading on Dec. 10. At that price, Altice USA stock is down about 60% from the beginning of the year, when it traded at $37.87 per share.  

While Altice’s visibility remains limited, Supino noted that in the cable business, “market structure and service quality trump everything else.” He added that supply and demand in Altice’s markets aren’t changing much, and by spending about $800 million per year over the next three years for fiber and upgrades, the company is obviously moving to improve its service. Add to that a too-low trading multiple -- Altice trades at around 7.3 times cash flow, compared to 9.9 times for Charter and Comcast trades at 8.3 times -- and Altice stock looks cheap. 

“For resilient businesses, valuation matters most when it is very high and very low, and more so when management is aligned with investors to exploit it,” Supino wrote. “If management agrees to sell the company, our $35 price target (+133%) looks very much ‘in play.’ If they don't sell it, we own a ‘trophy case’ portfolio generating a 12% equity free cash flow yield and a 24% discretionary free cash flow yield.” ■

Altice USA shares fell another 10% Friday as investors continued to rush for the exits after CEO Dexter Goei said the company would have to increase spending as Q3 broadband additions enter negative territory, causing some to call into question the company’s past aggressive cost-cutting strategy. 

Altice USA shares traded as low as $19.74 each on Friday morning (down 10.5%, or $2.32 per share), after a 12.7% decline on Thursday when Goei said at the virtual Goldman Sachs Communacopia conference that the company would lose between 15,000 and 20,000 broadband customers in the third quarter. The stock closed at $20.59 each on Sept. 24, down 6.7%, or $1.47 per share.  

“If perchance Altice USA CEO Dexter Goei MEANT to destroy his own stock yesterday, he could hardly have been more thorough,” wrote Bernstein media analyst Peter Supino in a note to clients Friday. “After stating that Altice would miss consensus broadband net additions for the third time in four quarters, Goei described a different operating and financial trajectory with less broadband ARPU growth, more operating expenses, more capital expenditure, and less share repurchase (maybe, probably, for now). This may have been the most thoroughly negative outlook we have ever heard.”

While operators have repeatedly warned that the COVID-fueled growth rates of 2020 will slow down in 2021, Goei’s comments hurt all the more because not only did they highlight that broadband performance not only could slow down but could turn negative, and that capital spending, on the decline as the focus of the cable business has shifted toward broadband, could rise. 

Also Read: Analysts Search for Meaning in Altice USA Leadership Change 

Goei didn’t say how much he expected expenditures to increase at the Goldman conference. Altice USA also is in a different situation than other operators because it is in the middle of a five-year fiber upgrade plan started in 2017. Already the company expects to pass about 1.5 million homes in its footprint with fiber by the end of the year, mostly in areas where it competes with Verizon’s Fios service. Whether it will extend that buildout to its renaming 1.5 million homes in the future remains to be seen. 

“Ultimately, we do believe that fiber is the technology, the winning technology going forward as opposed to improvements in DOCSIS technology," Goei said at the Communacopia conference, but he added that it is getting harder to find technicians that know how to build fiber networks.    

In a research note, Barclays media analyst Kannan Venkateshwar wrote that he believes Altice USA’s problems go beyond infrastructure. 

“We believe costs may have been cut too deeply in areas such as customer support and billing, which may need to be built back to match the footprint expansion,” the analyst wrote. “This is why the turnaround in operations may take a while to materialize.”

As far as its stock, Venkateshwar noted that Goei also said the company will slow its share repurchase program, a key component of its valuation. He added that Altice USA’s track record for multiple guidance cuts in the past two years and its inability to meet its short-term goals have threatened its credibility, which has also pressured the stock.

“Overall, we believe Altice USA is back to where it was at the time of its IPO with respect to gaining investor confidence,” he wrote. “It took management a couple of years of execution to gain investor attention post IPO, and in many ways, the company appears to be back in that cycle. Consequently, we do not see any good reason to recommend the stock.” 

Altice USA burst on the U.S. cable scene about six years ago, when it’s former parent Altice NV purchased Suddenlink Communications and Cablevision Systems in quick succession. Led by then chairman Patrick Drahi, an admirer of US cable legend John Malone, Altice USA believed it could squeeze profit out of what many said was a rapidly maturing industry by slashing expenses and imposing European-style cost discipline to the bloated U.S. cable business. 

While most analysts doubted that ability, Altice made good on that promise by removing $900 million in costs from its former Cablevision and Suddenlink businesses, later going public in 2017. But now, with its stock price falling sharply — it reached a new 52-week low Friday — some analysts are wondering if the company may be better off increasing its leverage to buy its remaining publicly traded shares, effectively abandoning the public markets altogether. 

At the Communacopia conference, Goei said that beefing up leverage is an option, but at least for the next three quarters, the focus will be on righting the ship. 

“We’ve got decisions whether we want to releverage the balance sheet at some point in time if we’re not getting rewarded for what we’re doing from an investments perspective, that we really believe in the medium-term results,” Goei said. “But I don't think that's a decision for us to make today.

“I think we’re focused, given the management changes, on making sure that all arrows are pointing in the right direction towards reinvesting in our business or accelerating our business, and that's what the focus is going to be over the next three quarters,” he continued. “Thereafter we can have discussions around what to do with our balance sheet, depending on how the market sees us.”

Also Read: Model Behavior

Goei said in part the Q3 loss was due to lower than expected gross adds and an “underwhelming”  back-to-school period And while some analysts noted the inherent seasonality of Q2 and Q3 in the cable business — typically that’s when customers move to summer homes and college students go off to school -- others weren’t buying it. 

“Explanations proffered by operators thus far for lower gross adds don’t really make much sense to us, especially given that telecom companies are actually seeing trends improve,” Venkateshwar wrote. “While some have blamed weaker back-to-school origination, most colleges in the U.S. are operating at close to full capacity and therefore it is not clear where this slowdown is coming from.”

Venkateshwar warned that “there are more shoes to drop,” pointing to eviction moratoriums expiring, fading unemployment insurance increases and the potential fallout from non-pay churn.

“[T]here is an unusual lack of visibility across cable industry unit growth trends, and given the fact that almost the entire residential revenue topline growth now depends on broadband relationships and the high proportion of fixed costs on the broadband side, valuation in the space could have more downside to reflect this uncertainty,” Venkateshwar wrote. 

Dish Network has weathered its fair share of criticism over the $10 billion it recently spent in the federal government’s AWS-3 wireless spectrum auctions, but according to several analysts, the satellite-TV provider’s participation has accomplished at least one major goal — it has significantly boosted its overall value.

Dish has said all along that the AWS-3 auctions — involving about 65 Megahertz of spectrum — would finally place a value on its existing wireless holdings, which have seesawed between $3 billion and $10 billion over the past several years.

Englewood, Colo.-based Dish was expected to be an aggressive participant in the AWS- 3 bidding and did not disappoint. Through two designated entities, SNR Wireless LicenseCo LLC and Northstar Wireless LLC, it successfully bid about $13.3 billion on licenses ($10 billion after the 25% designated entity discount) in major markets like New York, Los Angeles and Chicago, and more rural areas.

It was the second highest amount bid by any individual company in the auctions — AT&T was first, with $18.2 billion — and bested Verizon Communications’s bids of $10.4 billion.

While some regulators have criticized Dish’s use of designated entities to obtain the discounts (according to the FCC, a designated entity is primarily a small business, but those rules were relaxed for this auction), most analysts focused on the value of the spectrum.

BTIG Research telecom analyst Walt Piecyk estimated that Dish’s AWS-3 spectrum could add significantly to the overall value of the company, because it can be used as both upload and download spectrum. Download spectrum is worth a lot more.

In the AWS-3 auction, according to Piecyk’s estimates, upload spectrum was valued at about $1.04 per MHz POP (or point of presence, a measurement of the number of people covered by each Megahertz of spectrum) in the top 35 markets, while downloadonly spectrum garnered a value of $6.70 per MHz POP. (A carrier that has 6 MHz of spectrum reaching a region of 6 million people has 6 million MHz POPs.)

At that valuation, Dish’s total spectrum holdings are worth about $72 billion — $55 billion for its licenses in the top 35 markets and about $17.2 billion for licenses elsewhere.

Add in $18 billion for its satellite-TV assets, and Piecyk puts Dish’s total enterprise value at about $90 billion.

Factoring out $14 billion of debt, including the $10 billion for the AWS-3 licenses, Piecyk puts Dish’s valuation at $165 per share — more than twice the $77 price range of Dish stock.

Accounting for taxes and even removing the $3.3 billion designatedentity discount drops the total value to $118 per share, still about more than 50% above Dish’s current price range.

While Dish’s spectrum purchases have increased its overall value, they could be a hurdle in any possible acquisition of the company.

Morgan Stanley media analyst Ben Swinburne wrote in a research note that in five of the top 20 markets (New York, Chicago, Boston, Minneapolis and Cleveland) Dish bought 10-15 MHz of paired spectrum, while Verizon bought none.

There were no markets in the top 20 where Dish acquired spectrum and AT&T bought none, Swinburne added, suggesting that Dish’s strategy was to concentrate its bidding in strategic markets and block Verizon.

“Verizon could find itself under additional pressure to sit down at the table with Dish,” Swinburne said, adding that any potential deals could take several forms, including acquisition, leasing spectrum or joint ventures.

M&A has been an issue with Dish in the past. With its satellite business maturing, investing in spectrum has been a boon to its share price as it contemplated building out a wireless broadband network with a partner, leasing spectrum or selling it outright.

Dish chairman Charlie Ergen has offered up the possibility of an overall sale of the company in the past — half-jokingly. Now what was always expected to be a hefty forsale price has gotten even more expensive.

“The bigger issue will be finding the company that can afford $90 billion,” Piecyk said in his blog post. “We suspect that Ergen might be willing to settle for somewhere in between today’s price and $165.”