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How Does Charter Compare to Its Peers on Valuation Multiples?

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Charter Communications’ scale

In the previous parts of this series, we briefly looked at the proposed merger of Charter Communications (CHTR), Bright House Networks, and Time Warner Cable (TWC). Now we’ll look at the value proposition of Charter among some of the biggest US cable companies. As of April 18, 2016, Charter is the third largest US cable player by market capitalization. It has a market capitalization of ~$22.7 billion. Cablevision Systems (CVC) follows Charter in this metric with a market capitalization of ~$9.3 billion.

Comcast (CMCSA) is the biggest US cable player with a market capitalization of ~$151.5 billion. Time Warner Cable follows Comcast in this metric with a market capitalization of ~$58 billion.

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Enterprise value multiples of Charter and its peers

Now let’s look at the EV (enterprise value) multiples of Charter and select cable players in the United States. Charter is trading at a forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of ~12.8x, as of April 18. This is higher than Time Warner Cable’s and Cablevision’s EV-to-EBITDA multiples of ~9x and ~9.7x, respectively, as of the same date.

Cash flow multiples of Charter and its peers

As of April 18, Charter is trading at a forward price-to-cash flow multiple of ~10.8x. Meanwhile, the comparable multiples of Time Warner Cable and Cablevision are ~9.3x and ~8.6x, respectively, as of the same date.

For diversified exposure to some of the largest US cable companies, you can consider investing in the SPDR S&P 500 ETF (SPY). The ETF had a total of ~1.2% of its holdings in Comcast (CMCSA), Time Warner Cable (TWC), and Cablevision (CVC) at the end of March 2016.

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