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Is Charter Stock an Attractive Buy at Its Current Price?

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Charter Communications (CHTR) stock closed 0.9% higher on Monday and ended the trading day at $480.72. The stock was trading 1.1% below its 52-week high of $485.99 and 76.2% above its 52-week low of $272.91. At the closing price on Monday, Charter Communications’ market cap was $103.3 billion. On a YTD (year-to-date) basis, the stock has risen about 68.7%.

Charter’s valuation

Analysts expect Charter Communications’ revenues to rise 4.8% in 2019 to $45.7 billion compared to 4.9% growth the previous year. The company’s sales will likely rise 5.4% in 2020 to $48.2 billion. Analysts also expect the adjusted EPS to rise 31.8% in 2019 compared to 89.8% growth in 2018. However, Charter Communications’ earnings will likely rise 93.8% in 2020.

The stock has a PE ratio of 36.07x and an enterprise value-to-revenue ratio of 3.84x for 2020.

Analysts’ recommendations and target price

On Tuesday, 61.8% of the 34 analysts covering Charter Communications stock recommend a “buy,” while 35.3% of the analysts have a “neutral” view. The remaining 2.9% of the analysts recommend a “sell.” The current median target price of $510.00 reflects a potential upside of 6.1% from the closing price of $480.72 on Monday.

Charter’s financial performance

In the third quarter, Charter Communications’ adjusted earnings rose 27.9% YoY to $1.74. Overall, the earnings rose around 25.2% from the previous quarter. The company’s revenues rose more than 5% YoY in the third quarter and improved 0.9% from the previous quarter. Analysts expect the fourth-quarter revenues to be $11.7 billion—up 4.5% YoY.

Subscriber metrics

In the third quarter, Charter Communications added 351,000 net residential broadband customers compared to 266,000 net additions in the third quarter of 2018. The company ended the third quarter with 24.6 million residential broadband customers—up 5.4% YoY.

In the third quarter, Charter Communications lost 77,000 residential pay-TV customers compared to 66,000 net losses in the third quarter of 2018. The company ended the quarter with 15.7 million residential pay-TV customers—down 2.6% YoY. Charter Communications is struggling to grow its video subscriber base due to competition from over-the-top services like Netflix and Amazon Prime.

According to a FierceVideo report on December 13, USB analyst John Hodulik said, “Charter sees the rate of cord cutting slowing down as single-family homes remain stable and the passing impact of multiple dwelling units, college and second homes on subscriber totals.” The report also said, “Charter will continue to offer video as long as it enhances the customer relationship. The company now has 4M video subs that are app-based (25%+ of the video base) and don’t require any CPE. Mgmt. expects fewer and cheaper STB and its market share growth to continue to drive lower capital intensity.”

In the third quarter, Comcast (CMCSA) added 359,000 residential broadband net customers, while it lost 222,000 residential video customers. The company reported an adjusted EPS of $0.79 on total revenues of $26.8 billion.

Technical analysis

Charter Communications closed 2.2%, 3.2%, and 10.1% above its 20-day, 50-day, and 100-day moving averages of $470.54, $465.90, and $436.72, respectively. The stock’s 14-day relative strength index score of 61 shows that it was approaching overbought levels.

Charter Communications’ lower, middle, and upper Bollinger Band levels are $460.57, $469.81, and $479.04, respectively. On Monday, the company closed near its upper Bollinger Band level, which indicated that it was overbought.

Read Take a Look at Charter’s Share Repurchase Activity to learn more.

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