Analyst maintains sell rating on Charter, cites repurchase activity

On Wednesday, Citi reaffirmed its Sell stance on shares of Charter Communications (NASDAQ:CHTR), maintaining a price target of $255.00. The firm observed that Charter's share repurchase activity in June showed a notable increase compared to May, with an acceleration of approximately 3.6% in dollar terms and about 1.2% in volume.

Charter's buybacks in June are estimated to have reached $139 million at an average price of $278 per share, including purchases from Advance/Newhouse.

For the second quarter of 2024, the company's total share repurchases amounted to $435 million, surpassing the Visible Alpha consensus of $391 million as well as Citi's own projection of $98 million. This active buyback strategy suggests two potential scenarios.

The first is that Charter's net debt leverage by the end of the second quarter remains relatively unchanged at around 4.41 times, indicating a slower than anticipated reduction in leverage throughout 2024.

The second possibility is that Charter may report stronger financial results for the second quarter, particularly in terms of EBITDA and free cash flow (FCF), which could support a slight improvement in net debt leverage on a last twelve months (LTM) basis.

Despite the possibility of improved financial performance, Citi has decided to maintain its Sell rating on Charter Communications shares. The firm acknowledges that better-than-expected financial outcomes could pose a risk to their current outlook on the stock.

In other recent news, Charter Communications has been the subject of several noteworthy developments. Goldman Sachs initiated coverage on Charter Communications with a 'Sell' rating, citing competitive pressures from both fixed wireless services and high-end fiber offerings as potential challenges for the company.

In a different vein, Charter Communications extended its distribution agreement with Paramount Global. This multi-year deal will continue to provide Spectrum TV customers access to Paramount's portfolio of cable networks and CBS stations, and will also introduce Paramount's direct-to-consumer streaming services to Spectrum packages at no extra cost.

Charter Communications also recently disclosed the pricing for its tender offer concerning the company's 4.908% senior secured notes due in 2025, as part of its debt management strategy.

The company successfully completed the issuance of $3 billion in senior secured notes, divided equally into two sets due in 2029 and 2034. The offering was managed by Barclays Capital Inc., Citigroup Global Markets Inc., and Morgan Stanley & Co. LLC.

Another financial maneuver saw Charter launching a cash tender offer to repurchase up to $1.7 billion of its 4.908% senior secured notes due in 2025. This buyback is also part of Charter's financial management strategy, aiming to manage its debt obligations effectively.

These are recent developments that provide insight into the company's strategic moves and the external factors influencing its operations.

InvestingPro Insights

Charter Communications (NASDAQ:CHTR) has been actively managing its capital allocation, as reflected by the aggressive share buybacks highlighted by Citi. InvestingPro data supports the notion of a robust repurchase program, with the company's market cap currently standing at $47.28 billion and a price-to-earnings (P/E) ratio of 9.32.

This P/E ratio has remained relatively consistent over the last twelve months as of Q1 2024, with an adjusted figure of 9.23. The company's revenue growth has been modest, at 0.29% over the last twelve months as of Q1 2024.

Two InvestingPro Tips that are particularly relevant to Charter's current situation include the fact that management has been aggressively buying back shares, aligning with the increased activity reported in June.

Moreover, analysts predict the company will be profitable this year, which may provide a foundation for the company's share repurchase strategy and could be a factor in the company's ability to manage its net debt leverage. It is noteworthy that Charter does not pay dividends, which could be a strategic decision to prioritize share buybacks and debt management.

For investors seeking a deeper analysis, there are additional InvestingPro Tips available, including insights on analysts' revised earnings expectations and the company's short-term obligations compared to its liquid assets. To access these tips and more, use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription at InvestingPro. With these insights, investors can make more informed decisions regarding Charter Communications' stock.

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