Cable stocks warrant a premium valuation, as the sector is a better business than wireless, KeyBanc Capital Markets said in an industrywide report.
KeyBanc's Brandon Nispel and Maddie Schrage initiated coverage of the following stocks:
- Altice USA Inc (NYSE: ATUS): Overweight, $25 price target.
- Cable One Inc (NYSE: CABO): Sector Weight, $700 fair value.
- Charter Communications Inc (NASDAQ: CHTR): Sector Weight, $280 fair value.
- WideOpenWest Inc (NYSE: WOW): Sector Weight, $9 fair value.
- Coverage of Comcast Corporation (NASDAQ: CMCSA) was transferred: Overweight rating, $38 price target.
The analysts named four reasons why the stocks remain more favorable to own:
- Prospects for higher growth.
- Lower capital intensity should result in expanding free cash flow profiles.
- Superior profitability.
- Less competition.
Cable broadband subscriber and market share growth is expected to slow, which implies investors may want to be more selective in their stock ownership, according to KeyBanc.
- Altice boasts an attractive broadband business which should generate steady or improving subscriber trends.
- The recent end to a programming dispute should yield better products for customers.
- The company's industry-leading adjusted EBITDA margins makes its business "more defensible."
- Cable One's growth prospects are "limited" in existing markets.
- The company's business is exposed to competition.
- The company may need to establish a "more aggressive inorganic growth strategy" to finance its growth.
- The premium awarded to Charter's stock above-average broadband subscriber growth is "overvalued."
- Charter's broadband growth is likely to decelerate at a faster rate compared to its peers.
- The company's lower bundled customer mix makes it less favorable to own compared to some of its peers.
- WideOpen faces the most competition in the broadband space.
- While the company is improving organic broadband subscriber growth, it is also taking a rate increase.
- Nevertheless, the stock's valuation at 6.5x 2019 EBITDA estimates is a discount to cable peer average at 7.8x, so the stock is "relatively inexpensive."
Altice Has 50% Upside Potential, Buckingham Says In Bullish Initiation
Charter Communications Succeeds In Turnaround Effort, Wells Fargo Says In Upgrade
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