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On Monday, Raymond (NSE:RYMD) James analyst Frank Louthan upgraded Charter Communications (NASDAQ:CHTR) stock rating to Market Perform from Underperform, following Charter’s acquisition of Cox Communications. Louthan highlighted the transaction’s potential to enhance Charter’s financial trajectory over the next two years, citing the deal as "very positive." The upgrade comes as Charter’s stock shows strong momentum, trading near its 52-week high of $437.06, with an impressive year-to-date return of 24.65%. According to InvestingPro data, the company’s current market capitalization stands at approximately $60 billion, reflecting its position as a prominent player in the Media industry.
Charter’s acquisition is set to drive scale and free cash flow (FCF) accretion while also allowing the company to reduce its leverage. Louthan pointed out that the transaction’s valuation at approximately 6.4 times enterprise value to EBITDA (EV/EBITDA) compares favorably with Charter’s current trading multiple of 7.18x. Post-deal, Charter is expected to move towards a sub-4x leverage ratio. InvestingPro analysis shows the company trading at an attractive P/E ratio of 11.71, with seven analysts recently revising their earnings estimates upward for the upcoming period. Get access to detailed valuation metrics and 10+ additional ProTips with an InvestingPro subscription.
The analyst noted Charter’s recent performance, particularly its nearly 20% wireless penetration, as a sign of effective strategy. The use of its wireless product as a competitive tool is expected to improve further once it replaces Cox’s current mobile virtual network operator (MVNO). Moreover, Charter’s video subscription turnaround and streaming product launch over Cox’s territory could lead to additional bundling benefits.
Louthan also mentioned the potential for Charter to experience a decline in capital expenditures as its rural build initiatives wind down, which would in turn drive increased FCF. Additionally, the integration of Cox’s business services and fiber acquisitions are seen as value-additive for Charter.
Cox Communications has been recognized for its strong operational history, high broadband penetration, and above-industry average broadband average revenue per user (ARPU). The acquisition is viewed as a strategic move for Cox to reallocate capital to higher growth areas, with the sale structured in a tax-efficient manner.
The analyst concluded that a competing offer from Comcast (NASDAQ:CMCSA) or private equity is unlikely, given the complexities involved and the longstanding relationships between the controlling families in the industry. The merger with Charter is deemed the most feasible deal due to these dynamics, as well as potential regulatory scrutiny a Comcast merger could attract. InvestingPro data reveals Charter maintains a "GOOD" overall Financial Health Score, with particularly strong ratings in profit and price momentum metrics. For comprehensive analysis including Fair Value estimates and detailed financial metrics, explore Charter’s Pro Research Report, available exclusively to InvestingPro subscribers.
In other recent news, Charter Communications and Cox Communications have agreed to merge, creating one of the largest deals in the cable industry. The merger values Cox at $34.5 billion, including $21.9 billion in equity and $12.6 billion in net debt. This merger will result in the combined entity adopting the name Cox Communications, with Chris Winfrey continuing as president and CEO. Liberty Broadband (NASDAQ:LBRDA) Corporation is set to expedite its acquisition by Charter Communications, aligning it with the Charter-Cox merger. Liberty Broadband will support the merger and plans to complete its acquisition by Charter concurrently. Benchmark analyst Matthew Harrigan has updated Charter Communications’ stock target to $475, maintaining a Buy rating. Harrigan noted Charter’s strong growth in mobile lines and its effective pricing strategy. Charter’s revenue aligned with projections, while its EBITDA growth exceeded expectations by 3.2%.
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