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Inside Charter Communications’ Capital Allocation Strategy

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Charter’s capital allocation strategy

Last month, Charter Communications (CHTR) raised $500.0 million through the sale of notes maturing in 2024. In addition, the company sold notes and raised $1.5 billion and $2.5 billion in July and April, respectively. The company intends to use the net proceeds from the notes sale for activities that include repurchasing some of its shares and repaying its outstanding debt.

During the Bank of America Merrill Lynch Media, Communications & Entertainment Conference held on September 6, Christopher L. Winfrey, Charter’s CFO, discussed the company’s capital allocation strategy. Winfrey stated that the company is mathematical and analytical about the way it looks at the allocation of capital. 

Winfrey noted, “We take a look at the return on investment associated with incremental spend and capital expenditure for new projects versus buying back our shares, versus buying the shares of another company compared to buying our own shares, which is M&A.”

Charter Communications looks at returns-based capital allocation and looks for opportunities to ensure that it has a continued perpetuity growth rate. Charter repurchased 6.4 million shares worth $1.9 billion in the second quarter. In fiscal 2017, the company spent $13.2 billion on share buybacks. 

Repurchasing shares can have several potential impacts on a stock, including improving EPS and decreasing the effects of stock dilution. Charter’s EPS increased ~121.2% YoY (year-over-year) to $1.15 in the second quarter.

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Peer EPS comparisons in Q2 2018

Among Charter Communications’ peers, Comcast’s (CMCSA) adjusted EPS rose ~25.0% YoY to $0.65 in the second quarter. Frontier Communications (FTR) reported adjusted EPS of -$0.80 in the second quarter, which underperformed the average analyst estimate of -$0.72.

In the integrated US telecom space, Verizon’s (VZ) adjusted EPS increased ~25.0% YoY to $1.20 in the second quarter, while AT&T’s (T) adjusted EPS increased ~15.2% YoY to $0.91.

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