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Altice Rides on Solid Subscriber Trends & Portfolio Strength

On Nov 23, we issued an updated research report on Altice USA, Inc. ATUS, one of the largest broadband communications and video services providers in the United States.

Altice has been rolling out enhanced data and services for its business customers through its unit Altice Business. Formed by merging its Lightpath, Optimum and Suddenlink business brands, Altice Business offers the best-in-class data, voice, video and managed services to about 2 million customers. Altice Business has also standardized its product portfolio, providing customers access to services that meet their needs, regardless of size or region, and creating more value and choice.

In addition, the company recently unveiled the Altice One Operating System (OS) 2.0 — a version 2 upgrade to its Altice One entertainment and connectivity platform. The Altice One OS 2.0 boasts enhanced features, giving customers access to the cloud DVR from the Altice One mobile app, access to the YouTube Kids app, more 4K content as well as live show restart on more than 20 additional networks. It will also allow customers to use voice search on YouTube. As an all-in-one entertainment system, Altice One is available to Optimum and Suddenlink cable customers. The upgrade will offer additional 4K content including English Premier League soccer. It will allow customers to restart live shows on channels like A&E, History Channel, Lifetime, Viceland, Fox News, Fox Sports 1 among others. Notably, Altice will offer these features only to Optimum customers.

Moreover, the company remains on track with its five-year plan to build a FTTH (fiber to the home) network and deploy its new home communications hub. The company believes that the FTTH network will be more resilient with reduced maintenance requirements, fewer service outages and lower power usage, which is likely to lead to further cost efficiencies. This network will allow Altice to satisfy demand for increasing speeds and support evolving technologies, such as the expected transition of mobile networks to 5G and enable it to capitalize on associated revenue-growth opportunities. Additionally, the company is building a next-generation fiber network capable of delivering broadband speeds of 10 Gbps, reflecting its continued investment in technology and innovation for customers in the United States.

Altice also augmented its market position as a pioneer in the advertising business with the launch of a4 — an advanced advertising tool — to provide audience-based, multiscreen advertising solutions for its clients. With this, the company has successfully implemented a strategic plan to strengthen its footprint in digital advertising through multiple acquisitions and investments.    

From being the first MVPD (multichannel video programming distributor) partner to offer addressable advertising solutions in the New York DMA, Altice has evolved as a leading player in this segment and has subsequently created a niche for itself. This was achieved through the acquisitions of Cablevision way back in 2015, followed by Audience Partners, a leading provider of authenticated IP addressability technology, and Placemedia, a premier provider of programmatic ad solutions for OTT and on-demand television.

With the successful integration of these businesses into Cablevision’s advertising and data business, Altice has brought to the fore unique skill sets for advertisers to identify the target audience across screens and local and national TV. They can now create an effective media plan, execute the buy and measure cross-screen reach, frequency and attribution to measure the efficacy of the program.

Leveraging the superior reach of a4, advertisers can reportedly extend their content to more than 90 million households, 85% of broadband subscribers and 1 billion devices in the United States. This would significantly aid advertisers to screen their messages to target pool of audience, thereby reducing operating costs.

Riding on these factors, Altice reported all-time best results in third-quarter 2018 with healthy year-over-year increase in earnings and revenues. Results were also driven by improved subscriber trends, highest ever margin and higher free cash flow. For full-year 2018, Altice anticipates revenue growth of 2.5-3% year over year. The company also reiterated the plan to expand its adjusted EBITDA and cash flow margins, over the medium to long term.

However, Altice has underperformed the industry with an average loss of 11.7% in the past year compared with a decline of 3.8% for the latter. Altice’s programming costs increased 3.9% year over year in the third quarter primarily due to a rise in contractual programming rates, partially offset by the decrease in video customers. We expect programming costs per customer to increase going forward.

Nevertheless, we remain impressed with the inherent growth potential of this Zacks Rank #2 (Buy) stock. Some other stocks in the industry worth considering are Corning Incorporated GLW, Harmonic Inc. HLIT and Knowles Corporation KN, each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Corning has a long-term earnings growth expectation of 8.8%. It surpassed estimates in each of the trailing four quarters, the average positive earnings surprise being 4.1%.

Harmonic has a long-term earnings growth expectation of 8.8%. It topped estimates twice in the trailing four quarters, the average positive earnings surprise being 94.4%.

Knowles has a long-term earnings growth expectation of 10%. It topped estimates thrice in the trailing four quarters, the average positive earnings surprise being 11%.

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