Charter Communications: A Buy on Favorable Developments

On Mar 20, 2015, Zacks Investment Research upgraded Charter Communications, Inc. CHTR by a notch to a Zacks Rank #2 (Buy).

In the fourth quarter of 2014, the company reported mixed financial numbers with its earnings falling short of the Zacks Consensus Estimate and revenues beating the same on strong video and Internet revenues. Fourth-quarter total revenue of $2,360 million improved 9.9% year over year. Segment-wise, Video revenues totaled $1,134 million, up 8.1% year over year. Internet revenues came in at $670 million, up 13.5% from the prior-year quarter.

For the current year, the company witnessed three upward revisions over the last two months with the Zacks Consensus Estimate for earnings moving up by 12.7% to $1.51.

Recently, a report by Leichtman Research Group Inc. (LRG) revealed encouraging data for the company which establishes the fact that cable MSOs have found a strong foothold in the high-speed broadband (Internet) market, steering past telecom. This came as a respite at the time when cable operators have been losing foothold in the core video market to fiber-based telecom operators and online video streaming service providers.

In Apr 2014, Charter Communications and Comcast had reached a strategic cable TV agreement. In March 2014, Comcast cut a deal with Time Warner Cable Inc. TWC to acquire the latter. The merged entity of Comcast and Time Warner Cable will likely have around 33 million pay-TV subscribers.

In order to avoid antitrust restriction, Comcast has decided to divest around 3.9 million Time Warner Cable video subscribers to Charter Communications to maintain its total market share at 30% of the U.S. pay-TV industry. The total deal size stands at approximately $20 billion.

We believe this deal will benefit Charter Communications significantly as the company is poised to achieve the scale needed to sustain itself in the intensely competitive U.S. pay-TV market.

Other Stocks That Warrant a Look

Some other well-placed stocks in the sector are DigitalGlobe, Inc. DGI and EchoStar Corp. SATS. Both the stocks hold the same Zacks Rank as Charter Communications.

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