Connectivity: It's a Charter thing

Recent Price $642
Dividend $0.00
Yield 0%
P/E Ratio 48
Shares (millions) 213.3
Long-Term Debt as % of Capital 68%
52-Week Price Range $663.70 - $345.67

 

The Covid-19 pandemic cemented the notion that the internet is essential to our daily lives. Indeed, our living spaces now serve multiple roles, including workplace and classroom. Internet connectivity fuels those megatrends. Not surprisingly, companies that provide internet connectivity enjoy strong demand. Charter Communications ($642; CHTR), a provider of cable, internet, voice, and mobile services, is no exception.

The firm brought on board some 850,000 new broadband customers in the second quarter of 2020. And in somewhat of a surprise, Charter increased its cable customers by approximately 100,000 and its mobile lines by a whopping 325,000. The company’s rapid growth has fueled impressive price action in these shares. Charter stock is up 38% over the last 12 months, versus 14% for the S&P 500.

The advance has left these shares trading at 41 times the 2020 earnings estimate of $14.76 per share — not exactly a bargain, but reasonable given the company’s growth profile and opportunities for further expansion. The stock is rated Buy and Long-Term Buy.

Room for growth

Charter is the nation’s second largest cable service provider, with more than 16 million video subscribers in 41 states. The company also offers high-speed internet and voice services to residential customers and businesses. Internet accounted for 48% of residential revenue, versus 47% for video. The firm also operates a fast-growing mobile-services business.

Charter may be the only cable/internet provider showing customer growth across all business lines. Gains in broadband users were aided by special promotions, including the Remote Education program offering free internet services for 60 days to households containing a student or educator. This promotion ended June 30, and nearly 50% of the participants chose to pay for additional services from Charter.

Broadband growth helped boost residential video subscribers by more than 100,000 in the quarter. While the company acknowledges the ongoing challenges of cord-cutting, the rapid growth of broadband and mobile-services lines should provide some support to video subscriber counts.

The rise in new customers, coupled with solid cost controls, drives big gains in earnings and cash flow. Per-share earnings of $3.78 in the June quarter compared to $1.39 a year earlier and beat the consensus by a whopping $1.13 per share.

Charter still has plenty of growth opportunities. The company estimates that roughly 50% of the population it can reach subscribes to internet services, leaving a sizable opportunity for adding clients.

Conclusion

Charter trades at 56 times trailing earnings, well above its peer-group average and historical norms. However, it has pulled back 9% from the 52-week high of $663.70 and offers a compelling growth play.

Charter Communications Inc., 400 Atlantic St., Stamford, CT 06901; (203) 905-7801; www.charter.com.

 

Quarter Per-Share Earnings* Sales Change Quarterly Price Range P/E Ratio
Range
Jun '20 $3.78 vs. 1.39 3% $549.00 - $413.39 65 - 49
Mar '20 1.98 vs. 1.11 5% 546.54 - 345.67 72 - 45
Dec '19 3.38 vs. 1.29 5% 487.52 - 405.02 88 - 73
Sep '19 1.74 vs. 1.44 5% 431.43 - 370.78 82 - 71

 

Year
(Dec.)
Sales
(Bil.)
Per-Share Earnings* Per-Share
Dividend
52-Week Price Range P/E Ratio
Range
2019 $45.8 $7.55 $0.00 $487.52 - $279.11 65 - 37
2018 43.6 5.22 0.00 396.64 - 250.10 76 - 48
2017 41.6 2.01 0.00 408.83 - 282.54 203 - 141
2016 40.0 3.97 0.00 294.87 - 172.67 74 - 43

 

Quadrix Scores
Overall Momen-
tum
Value Quality Financial
Strength
Earnings
Estimates
Perform-
ance
Reversion
72 84 44 88 50 74 39 7

 

* Earnings exclude special items.
NA Not Available.
Quadrix® scores are percentile ranks, with 100 the best.
e Dividend and yield estimated.