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Why Is Charter (CHTR) Up 11.6% Since Last Earnings Report?

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It has been about a month since the last earnings report for Charter Communications (CHTR). Shares have added about 11.6% in that time frame, outperforming the S&P 500.

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

Charter's Q3 Earnings Beat Estimates, Revenues Miss

Charter reported third-quarter 2020 earnings of $3.90 per share that beat the Zacks Consensus Estimate by 27.9% and jumped 124.1% year over year.

Revenues of $12 billion increased 5.1% on a year-over-year basis, owing to growth in Internet, mobile and advertising segments. The figure marginally missed the consensus mark by 0.3%.

Segmental Details

Residential revenues came in at $9.4 billion, up 4% from the year-ago quarter.

Monthly Residential revenues per Residential Customer (excluding mobile) totaled $109, down 2.7% year over year.

Internet revenues grew 12.5% year over year to $4.7 billion driven by growth in Internet customers, promotional rate step-ups and rate adjustments.

Video revenues fell 3.2% to $4.2 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 5.8% to $449 million due to a decline in wireline voice customers over the last 12 months and value-based pricing.

Commercial revenues decreased 0.8% year over year to $1.6 billion. Small and medium business revenues came in at $988 million, up 2.6% year over year, reflecting customer relationship growth.

Enterprise revenues increased 5.8% to $617 million excluding Navisite in 2019 and wholesale revenues.

Third-quarter advertising sales revenues of $460 million increased 16.8% year over year, driven by higher political revenues and resumption of multiple sports events and leagues, partly offset by lower local and national sales, which are recovering from weakness witnessed so far during the COVID-19 pandemic.

Mobile revenues surged 91.8% year over year to $368 million. Other revenues came in at $214 million, down 0.7% year over year driven by lower processing fees, partly offset by higher video customer premise equipment (CPE) sold to customers.

Subscriber Statistics

As of Sep 30, 2020, Charter had 30.933 million total customer relationships, up 6.8% year over year.

Moreover, the company had 26.807 million residential Internet customers, up 1.9% year over year. More than 85% of customers were subscribers to tiers that provided 100 Mbps or more speed. Currently, 200 Mbps is the slowest speed offered to new Spectrum Internet customers in roughly 60% of Charter's footprint, with 100 Mbps being the slowest speed offered in the remaining 40% of its footprint.

Charter added 494K residential Internet customers in the reported quarter.

Further, Charter added 363K mobile lines in the third quarter. As of Sep 30, 2020, the company served a total of 2.1 million mobile lines. However, the company lost 25K voice customers in the third quarter of 2020.

Operating Details

Total operating costs and expenses increased 0.5% from the year-ago quarter to $7.4 billion.

Programming costs declined 2.3% year over year to $2.7 billion due to a rise in renewals and contractual programming. Regulatory, connectivity and produced-content costs were down 0.1% to $612 million.

Costs to service customers increased 0.4% year over year to $1.9 billion. Marketing costs were $788 million, down 0.7% year over year.

Notably, mobile costs jumped 35.2% year over year to $456 million.

Adjusted EBITDA increased 13.6% year over year to $4.6 billion. Moreover, adjusted EBITDA margin expanded 280 basis points (bps) to 38.5%.

Balance Sheet & Cash Flow

As of Sep 30, 2020, cash and cash equivalents were $1.28 billion compared with $2.1 billion as of Jun 30, 2020. The company’s credit facilities provided roughly $4.7 billion of additional liquidity.

Further, as of Sep 30, 2020, total debt was $79.1 billion compared with debt of $77.8 billion as of Jun 30.

Cash flows from operating activities totaled $3.7 billion compared with $2.9 billion in the year-ago quarter.

Property, plant and equipment expenditures totaled $2 billion in the reported quarter compared with $1.7 billion in the year-ago quarter, primarily driven by increases in scalable infrastructure, line extensions and Internet CPE.

Free cash flow was $1.8 billion compared with $1.3 billion in the year-ago quarter.

Guidance

Charter currently expects 2020 cable capital expenditures to be consistent and possibly lower as a percentage of cable revenue versus 2019, despite the significant acceleration in customer growth and network utilization during COVID-19.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 6.01% due to these changes.

VGM Scores

Currently, Charter has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

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

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. 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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