Opinions
The Panic-Proof Portfolio (Stockchase Research)
Charter Communications
CHTR-Q
TOP PICK
Dec 12, 2023
Stock price when the opinion was issued
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Very well run company serving millions of customers across ~40 US states. In sweet spot of mobile phone demands. Excellent capital allocation skills with low debt levels. Capital expenditures expected to drop which will increase free cash flow. When interest rates fall, will also be good for profits in the business (less lending costs).
He got out just below $300. Surprised by management's Q1 commentary, didn't expect capex buildout extension and cost escalation. Free cashflow would not arrive until 2028, and this skewed his valuation. Even though it's fallen, fresh eyes would not make him re-enter, risk/reward just not there.
Its poor performance has put him off investing in telcos. Lots of competition for internet, wireless, and mobile. Using a lot of free cashflow to buy back stock at much higher prices, so balance sheet not as good anymore. Interest rates have gone up, and lots of cashflow being used to service this cost.
He fell in love quickly, but speculative here. Arguably cheap valuation but, until you see a turn in the business, hard to say where the stock is going.
CHTR is a broadband and cable operator serving 32 million customers in the US in 41 states under the Spectrum brand and is a favorite of Warren Buffet. It trads at 12x earnings and supports a 40% ROE. Cash reserves are growing while debt is aggressively retired and shares bought back. We recommend setting a stop-loss at $290, looking to achieve $466 -- upside potential of 26%. Yield 0%
(Analysts’ price target is $466.59)