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Altice USA Stock Drops 15% After Parent Reduces International Guidance

Altice USA stock was hammered Friday morning, down more than 15% in early trading, after its parent company, European telecom company Altice N.V., said full-year cash flow growth at its international telecom operations would come in at the lower end of previous guidance.

Altice USA shares were down more than 15% in early trading to $20.66 each ($3.84 each). The stock finished the day down 7.8% ($1.91 each), closing at $22.59 per share.

The fall-off in the U.S. operation appears to be strictly guilt by association as the decline closely followed those of its parent company stock, traded on Amsterdam’s Euronext Exchange. Altice N.V. shares were down in the double digits most of the day, closing Nov. 3 at 12.51 euros, down 22.6% or 3.65 euros each.

Altice USA released its Q3 results Thursday afternoon and, despite headwinds in the cable business overall as cord-cutting and skinny bundles continue to erode video subscribers, results were generally better than expected.

But at the international operations, Altice N.V. said cash flow guidance would be at the “low end” of the high-single digit percentage range. It previously had expected growth to be in high-single digit percentages. Revenue at the international operations was down 1.8% in Q3, with cash flow up 1.8%.

Revenue at the U.S. business grew 3.2%, and cash flow was up a healthy 18.9%, fueled mainly by the company's aggressive cost-cutting methods.  

“From a fundamental perspective the [U.S.] stock should be up on these results vs. the current 15% decline,” said Pivotal Research Group CEO and senior media & communications analyst Jeff Wlodarczak. But he added that the combination of the guidance adjustment by the parent and the overall negative sentiment from investors in the U.S. cable business over cord-cutting and competition was a big factor in driving down the share price.

“The irony is that prior to 3Q Altice NV and Altice USA have been trading off due to concerns around the U.S. outlook,” Wlodarczak said. “They beat in the U.S., and the stock dumps anyways.”

Altice USA went public in June at about $30 per share and enjoyed early gains as speculation about possible consolidation moves goosed the stock. But as those deals haven’t materialized, the stock has declined. Altice USA’s stock price was down by about 28.6% between June 23 – it’s high point – and Nov. 2. With the stock’s decline Friday, shares have plunged nearly 40%.

In a research note Thursday, MoffettNathanson principal and senior analyst Craig Moffett said that although Altice USA lost subscribers in Q3, it has managed to squeeze substantial margin growth from its operations. Margins, at about 44.1%, are near what the company promised when it first purchased Cablevision Systems in June 2016, and are easily outpacing industry averages.  

In a note to clients Thursday, Moffett wrote that so far Altice USA’s growth hasn’t suffered, adding that the Q3 results make “clear that the cost-cutting story remains on track,” adding that although its growth rates aren’t at the same level as larger peers like Comcast and Charter, they aren’t behind by much.

“With stable unit metrics, rising prices, and falling costs, near-term numbers look very good,” Moffett wrote. “Perhaps that will be enough to convince investors to set aside their terminal growth rate anxieties.”