Charter Jumps On Strong Earnings, General Cable Optimism

Prior to Charter Communications Inc. (CHTR) reporting earnings this week, cable rival Comcast Corp. (CMCSA) released results for the quarter ended March 31. Revenue increased 12% to $7.0 billion for first quarter that reflected increasing consumer demand for Comcast's services and the success of the Comcast Triple Play, a popular package offering television, broadband and telephone service.

AG Edwards analyst Kent Custer reacted positively to the earnings report, raising his rating on the company to "buy" from "hold." Custer expects accelerating sales and margin expansion in the future. But surprisingly, shares of Comcast and other industry peers including Charter sold off. However, we noted that a pullback might present an opportunity for investors to take advantage of the market mispricing. After all, Charter would most likely report solid growth as confirmed by Comcast's earnings and positive guidance going forward. It seemed like a safe bet.

Further proof came when Time Warner Cable Inc. (TWC) the nation's second largest cable television operator reported a 16% rise in quarterly profit, citing an increase in subscribers due to the demand for its triple offering of video, phone and Internet services.

Thus, it should not have been too much of a shock when Charter reported first-quarter revenues of $1.425 billion that grew 10.7%. Charter showed strong momentum in the first quarter, generating the highest quarterly unit growth in over five year. According to Barron's, Charter added more subscribers in the quarter than the Street expected for all of its services including video, Internet telephony and broadband. UBS analyst Joseph Stein noted the company beat his estimates for pro forma EBITDA ($496 million versus $479 million) as well as cable EBITDA margin (34.8% versus 33.8%). The company added 124,000 high-speed data customers in the quarter (beating his estimate of 89,000) and 127,000 VoIP customers (topping his 116,000 estimate).

That's why it was puzzling when investment guru Jim Cramer advised viewers of his CNBC "Mad Money" television show to not buy Charter stock until after the earnings report. But if investors looked at other players in the industry, they would have seen that solid numbers were already foreshadowed and baked into the report. Hence, an important lesson was learned to pay attention to competitors.

As a result, investors are jumping in today and the market is adjusting to reflect the momentum in Charter's business, with shares hitting a new 52-week high. The stock closed higher by $.24, or 7.1%, to $3.63 on heavy volume of 31 million shares.

CHTR 1-yr chart: