How CHTR’s Forward Valuation Compares to Its Peers

Charter’s forward PE valuation

Earlier in this series, we learned about some key updates for Charter Communications (CHTR). The two best valuation multiples used for valuing companies like CHTR are forward PE (price-to-earnings) and EV-to-EBITDA[1. enterprise value to earnings before interest, tax, depreciation, and amortization] multiples, considering the relatively stable and visible nature of their earnings.

PE multiples represent what one share can buy for an equity investor. On March 27, 2017, Charter Communications was trading at a forward PE multiple of ~37.2x, which was higher than Verizon’s (VZ) forward PE multiple of ~12.5x and AT&T’s (T) forward PE multiple of ~13.7x, respectively.

How CHTR’s Forward Valuation Compares to Its Peers

Charter’s forward EV-to-EBITDA valuation

The capital-intensive telecom industry has high levels of depreciation and amortization, as well as varying degrees of debt and operating leases. To neutralize these factors, we use the EV-to-EBITDA ratio to value telecom stocks. The forward EV-to-EBITDA ratio shows what investors are willing to pay for the next four quarters of estimated EBITDA.

On March 27, 2017, Charter Communications’s forward EV-to-EBITDA metric was ~10.0x, which was larger than Sprint’s (S) forward EV-to-EBITDA of ~5.9x. Meanwhile, integrated US telecom giants Verizon and AT&T had similar EV-to-EBITDA metrics of ~6.7x and ~6.8x, respectively.