With Charter Up 64% this Year, Is More Upside Ahead?

Yesterday, Charter Communications (CHTR) rose 0.3% and closed at $467.31, with a market capitalization of $100.4 billion. The stock is trading at a discount of 3.8% to its 52-week high of $485.99. It’s also trading at a premium of 71.2% to its 52-week low of $272.91.

Charter Communications stock has risen about 64% on a year-to-date basis as of Tuesday. The company’s strong financial performance drove its share prices higher in 2019. The Dow Jones and the S&P 500 have risen 20.6% and 25.3%, respectively, during the same period. Meanwhile, Comcast (CMCSA) and Dish Network (DISH) stocks have risen 27.9% and 39.6%, respectively.

Financial performance

In the third quarter, Charter’s EPS of $1.74 not only beat analysts’ estimate of $1.66 by 4.8% but were also 27.9% higher than its earnings of $1.36 in the third quarter of 2018.

In the third quarter, Charter’s revenue rose 5.1% year-over-year to reach $11.5 billion, $37 million ahead of the Thomson Reuters average consensus revenue expectation. Charter’s residential services revenue rose 4.4% year-over-year to $9.0 billion in the third quarter. Meanwhile, its commercial services revenue rose 4.1% year-over-year to $1.6 billion. However, the company’s advertising revenue fell 10.5% year-over-year to $394 million. In addition, it reported mobile sales of $192 million.

Subscriber metrics

Charter Communications lost a net of 75,000 traditional video customers in the third quarter, compared to 54,000 net losses in the third quarter of 2018. The company has been reporting a video customer losses for the past seven consecutive quarters. Charter’s total pay-TV customers fell 2.3% year-over-year to 16.2 million as of September 30.

AT&T (T) and Comcast lost a net of 1.2 million and 238,000 pay-TV customers in the third quarter, respectively. Dish posted a net loss of 66,000 traditional pay-TV customers in the third quarter. The companies lost pay-TV subscribers due to competition from over-the-top streaming services like Amazon Prime, Netflix, and Apple TV+.

According to a CNBC report dated November 21, Charter Communications CEO Tom Rutledge said, “The number of people ditching their cable subscriptions will not continue at its current pace.” The report added, “In aggregate, they’re going to slow down.”

Amid declining pay-TV subscriber base, Charter Communications is focusing on its high-speed broadband segment. In the third quarter, the company added 380,000 net high-speed Internet customers compared to 308,000 net additions in the prior-year quarter. Charter’s high-speed Internet customer count grew 5.6% year-over-year to 26.3 million in the third quarter.

Analysts increase Charter’s target price

Many analysts increased their price targets for CHTR stock after the third-quarter earnings results:

  • Cowen, from $433 to $537.
  • J.P. Morgan, from $480 to $550.
  • Citigroup, from $483 to $505.
  • Guggenheim, from $488 to $528.
  • RBC, from $375 to $440.
  • Suntrust Robinson, from $440 to $495.
  • Raymond James, from $460 to $525.
  • UBS, from $435 to $525.
  • Morgan Stanley, from $450 to $500.
  • HSBC, from $355 to $430.

Overall, analysts have “buy” ratings on CHTR stock. Among the 33 analysts who cover Charter, 64% give it a “buy” rating while 33% say “hold.” About 3% of the analysts give it a “sell” rating.

Currently, analysts have a 12-month mean target price of $496.97 for CHTR. On November 26, the company was trading at a discount of 6.3% to analysts’ 12-month target price. The stock’s median target price was $502.50 as of the same date.

Comcast stock was rated as a “buy” by 30 out of 36 analysts or 83% of the analysts surveyed. While Dish was rated as a “buy” by six out of 18 analysts.

Charter’s valuation

Currently, Charter stock is trading at 67.88x its 2019 estimated EPS of $6.88. The stock is also trading at 34.68x its 2020 estimated EPS of $13.48. Analysts expect the EPS to rise 31.8% in 2019 and 95.9% in 2020. Charter’s earnings will likely rise at a compound annual growth rate of 46.7% over the next five years. However, the company’s revenues could rise 4.8% in 2019 and 5.5% in 2020.

Charter stock looks overvalued considering its expected earnings growth in 2019. However, the stock appears undervalued considering its expected earnings growth of 95.9% and its PE ratio of 34.68x for 2020.

Charter stock’s technical levels

On November 26, Charter closed 4.6% above its 50-day moving average of $446.62 and 10.2% above its 100-day moving average of $424.03. The company was also trading 1.2% below its 20-day moving average of $472.95.

Charter’s 14-day MACD is -6.29, which suggests a downward trading pattern. Meanwhile, the company’s 14-day RSI score of 54 indicates that the stock isn’t overbought or oversold. On November 26, the stock closed near its lower Bollinger Band level of $464.13, which denotes that it’s oversold.