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Charter (CHTR) Down 6.3% Since Last Earnings Report: Can It Rebound?

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Zacks Equity Research
·5 min read
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A month has gone by since the last earnings report for Charter Communications (CHTR). Shares have lost about 6.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Charter due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Charter's Q4 Earnings, Revenues Top Estimates

Charter Communications reported fourth-quarter 2020 earnings of $6.50 per share that beat the Zacks Consensus Estimate by 22.7% and jumped 84.5% year over year.

Revenues of $12.6 billion increased 7.3% on a year-over-year basis, owing to growth in Internet, mobile and advertising segments. The figure marginally beat the consensus mark by 0.5%.

Segmental Details

Residential revenues came in at $9.72 billion, up 5% from the year-ago quarter.

Monthly residential revenues per customer (excluding mobile) totaled $111.85, down 1.7% year over year.

Internet revenues grew 11.9% year over year to $4.86 billion driven by growth in Internet customers, promotional rate step-ups and rate adjustments.

Video revenues fell 1.2% to $4.4 billion due to lower pay-per-view and video on demand revenues and lower installation revenues, partly offset by rate adjustments and promotional rate step-ups.

Moreover, voice revenues decreased 0.2% to $449 million due to a decline in wireline voice customers over the last 12 months.

Commercial revenues improved 1% year over year to $1.6 billion driven by SMB and enterprise revenue growth. Small and medium business revenues came in at $997 million, up 1.1% year over year, reflecting customer relationship growth.

Enterprise revenues increased 0.9% to $623 million. Enterprise revenue growth was impacted by lower cell tower backhaul and other wholesale revenues. Enterprise retail revenues excluding wholesale revenues increased 5.4% year over year, reflecting PSU growth.

Fourth-quarter advertising sales revenues of $625 million increased 43.9% year over year, driven by higher political revenues and advanced advertising, partly offset by lower local sales.

Mobile revenues surged 80.9% year over year to $428 million. Other revenues came in at $222 million, up 1.5% year over year.

Subscriber Statistics

As of Dec 31, 2020, Charter had 31.1 million total customer relationships, with 1.9 million customers added in 2020. The figure increased 6.5% year over year.

Moreover, the company had 29.079 million residential Internet customers, up 6.6% year over year.

As of Dec 31, 2020, over 85% of residential Internet customers subscribed to tiers that provided 100 Mbps or more of speed, and over 50% subscribed to tiers that provided 200 Mbps or more of speed. During the fourth quarter, Charter doubled its starting download speed to 200 Mbps in 17 markets.

Charter added 216K residential Internet customers in the reported quarter.

Further, Charter added 315K mobile lines in the fourth quarter. As of Dec 31, 2020, the company served a total of 2.4 million mobile lines. However, the company lost 120K voice customers in the fourth quarter of 2020.

Operating Details

Total operating costs and expenses increased 5.5% from the year-ago quarter to $7.63 billion.

Programming costs increased 3.6% year over year to $2.9 billion due to a rise in renewals and contractual programming. Regulatory, connectivity and produced-content costs were down 10.7% to $532 million.

Costs to service customers increased 4.4% year over year to $1.8 billion. Marketing costs were $758 million, up 1.4% year over year.

Notably, mobile costs jumped 40.5% year over year to $522 million.

Adjusted EBITDA increased 10.2% year over year to $4.9 billion. Moreover, adjusted EBITDA margin expanded 110 basis points (bps) to 39.6%.

Balance Sheet & Cash Flow

As of Dec 31, 2020, cash and cash equivalents were $998 million compared with $1.28 billion as of Sep 30, 2020. The company’s credit facilities provided roughly $4.7 billion of additional liquidity.

Further, as of Dec 31, 2020, total debt was $82.1 billion compared with debt of $79.1 billion as of Sep 30.

Cash flows from operating activities totaled $4.41 billion compared with $3.35 billion in the year-ago quarter.

Property, plant and equipment expenditures totaled $2.1 billion in the reported quarter compared with $2.3 billion in the year-ago quarter, primarily driven by declines in scalable infrastructure and support spending.

Free cash flow was $2.1 billion compared with $1.6 billion in the year-ago quarter.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Charter has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Charter has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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