Charter Communications: Playing A Long-Term Game, But The Stock Has Limited Upside

Summary

• Charter's shares plunged after intense competition and rising CapEx concerned investors. The shares have bottomed up and are now trading at $396 per share based on Friday closing price.
• In our view, the competition will be tougher between cable and fiber overbuilders. Thus, cable must ramp up its CapEx to undergo the so-called network evolution.
• We believe that the competition will be down to price. Charter has been aggressive in its pricing: Spectrum One for $49.99/month and one mobile line for $29.99/month.
• A converged bundle with such an aggressive pricing could drive internet and mobile net adds, as well as help retain its customers once the promotional period ends.
• Our 10-year reverse DCF model suggests that the market is expecting a ~2.2% revenue CAGR. However, this is still achievable. A 3% growth brings the implied share price to $466/share (18% upside). We assign a HOLD rating for Charter.

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The Shares Have Bottomed Up

Charter Communications (NASDAQ:CHTR) stock plunged from its all-time high of more than $800 per share to $300 per share in just a year. Indeed, intense competition and rising capital expenditures concerned investors, prompting investors to dump the

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