Altice USA stock was up more than 7% on Thursday, slowly chipping away at the more than 20% hit the shares took in the past week, fueled in part by an analyst report that noted the company could be taken private at an even lower price than once believed.
Shares in Altice USA closed at $20.73 on Sept. 30, up 6.1% or $1.20 per share. Despite the gain, the stock, which rose as high as $21.05 (up 7.8%) during the day, is still behind the $25.26 price it traded on Sept. 23, the day before CEO Dexter Goei said broadband additions would be negative in the third quarter.
In a research report Thursday, Evercore ISI analyst James Ratcliffe lowered his 12-month price target on the stock to $30 per share from $44, maintaining his “outperform” rating on the shares but reducing his revenue and cash-flow estimates for the company as its broadband outlook declines. Other cable operators have said they expect broadband subscriber additions to slow as the positive effects of the pandemic wane. And though Altice USA does expect broadband additions to slide into negative territory in Q3, Goei said he expected to end the year either flat or slightly positive.
In his note, Ratcliffe said he doesn’t believe Altice USA’s challenges are insurmountable, but added that any solution will take time.
“With that said, we don’t see any meaningful near-term catalysts for the stock, as we believe investors will need to see evidence of a return to subscriber growth for the stock to move meaningfully higher,” the analyst wrote. “For a long-term investor, however, we believe current levels can mark an attractive entry point for the shares.”
But perhaps the most shocking part of Ratcliffe’s report is the revelation that the remainder of Altice USA’s public float — about 43% of its total outstanding shares — is valued at under $4 billion. Given that low price, and past precedent, it wouldn’t take much for its controlling shareholder, Altice N.V. chairman Patrick Drahi, to take the company private.
Ratcliffe noted that Drahi took Altice Europe private earlier this year. By taking out the remainder of Altice USA’s public float at $30 per share, the company’s leverage would only increase to about 7 times 2022 estimated cash flow and still have significant free cash flow to pay higher interest costs. Even with Thursday’s price increase, a $30-per-share takeout would represent a 44% premium.
Also in his report, Ratcliffe estimated that a $30-per-share takeout would cost Altice USA about $5.9 billion. At $45 per share, the total cost would be about $8.8 billion.
Other analysts have said Altice USA could go private, with MoffettNathanson principal and senior analyst Craig Moffett estimating earlier this month that the company sell off its Suddenlink Communications operation to partly finance the transaction.
Mike Farrell is senior content producer, finance for Multichannel News/B+C, covering finance, operations and M&A at cable operators and networks across the industry. He joined Multichannel News in September 1998 and has written about major deals and top players in the business ever since. He also writes the On The Money blog, offering deeper dives into a wide variety of topics including, retransmission consent, regional sports networks,and streaming video. In 2015 he won the Jesse H. Neal Award for Best Profile, an in-depth look at the Syfy Network’s Sharknado franchise and its impact on the industry.
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