Following the publication of telecoms company Charter Communications' broadband expansion plan, its share price fell by more than 16%, the biggest daily drop since the start of its listing history. Let's consider whether this decline might be exaggerated?
A few words about Charter Communications and its situation
Charter Communications (CharterComm) is a US-based company that provides telecommunications services such as cable television, internet and telephony. The company is one of the largest providers of these services in the US, reaching more than 25 million customers nationwide. The company also offers entertainment-related services: access to pay TV, movies and music.
Chris Winfrey, chief operating officer of Charter Communications states in a Tuesday commentary: "The second-largest US cable company unveiled a three-year network spending budget starting with $10.7 billion next year, $1 billion more than analysts estimated."
Currently, telecoms companies, such as those providing cable, telephone and satellite services, are vying for a share of the $100 billion allocated by the federal government to expand broadband access to poorer and rural areas of the country. One of the biggest challenges to such ventures appears to be the high cost, as previous attempts to expand the internet network have shown.
Instead of replacing its telecoms line cables, Charter Communications, as a cable service provider, has decided to use a technology called DOCSIS 4.0. This technology uses amplifiers so that existing cable systems could deliver multi-gigabit internet speeds to customers. This approach differs from that used by competitors in the telecoms industry.
Financial situation
The company boasts an unbroken series of year-on-year revenue growth since 2010. The most recent increase was 3% year-on-year. The company's operating profit appears to be even better, having grown by an average of 25% year-on-year since 2020. However, the company's net profit margin does not look so optimistic against its competitors at 10.21% (industry 13.62%), which may be due to its business model geared towards operating on old wireline networks.
The announced expenditure of more than 10.7 billion on network development in small towns without government programmes could prove very difficult or even impossible to achieve. Among other things, this is because Charter Communications currently has $480 million in cash. The extent of government programme support may therefore be key here.
What does Wall Street think of Charter Communications' share price?
According to the Market Screener portal, the company has 31 recommendations, and among them, the majority are those with the content: "Buy" and "Hold". The average target price is set at USD 462.25, 40% above the last closing price. The highest target price is at USD 649 and the lowest is USD 273.
Source: Conotoxia MT5, CarterComm, Daily
Grzegorz Dróżdż, Junior Market Analyst of Conotoxia Ltd. (Conotoxia investment service)
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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