Charter Communications (CHTR) has two fresh signals for investors. The board signed off on a regular preferred dividend, and management also opened the door to potential cable focused acquisitions.
The preferred dividend and M&A comments land at a tricky moment for Charter Communications shareholders. The stock has fallen 22.4% on a 30 day share price return and is down 44.3% year to date, while the 1 year total shareholder return has declined 55.7%. This points to fading momentum despite management’s efforts to signal confidence and capital discipline.
Scan how Charter Communications compares with other hand picked value ideas that share similar pressure on sentiment in the 29 high quality undervalued stocks.
Charter Communications trades at a steep discount to both analyst targets and intrinsic estimates after this sharp slide. Is the gap signaling mispricing, or is the market simply pricing in risk that the models miss?
Most Popular Narrative: 60.4% Undervalued
Charter Communications last closed at $116.61, while the most followed narrative pegs fair value at $294.71 per share, implying a wide gap that investors are trying to explain with capital intensity, debt and industry headwinds.
CHTR closed Q-2 with 119mm shares. At the current price of $124 per share, that translates to a mkt. cap of roughly 14.7B. Additionally, the FMV of their bond debt is approximately 10B less than the principal. Last Q CHTR bought bonds and booked a 243mm gain, while decreasing debt by approximately 1B. With the accurate share count and the embedded value in the FMV of the debt, my estimate of EV is roughly 95B, not the widely reported estimates of 111-113B.
See why 3 investors see Charter Communications as 60% undervalued.
According to david_6nroa, this narrative leans heavily on free cash flow, capital expenditure rolling off and the gap between the reported enterprise value and an adjusted estimate of about $95b that reflects the bond market pricing of Charter Communications debt. It also bakes in a discount rate of 12.46% and assumes revenue growth of 5.0% with a profit margin of 9.0521%, which helps justify a fair value level far above the recent share price.
The same narrative flags muted growth prospects and a slowly declining industry backdrop, yet still frames Charter Communications as materially undervalued based on an estimated fair value of $294.71 versus the current market value of roughly $19.2b. The conclusion is that the market may be heavily penalising leverage and earnings forecasts, while ignoring the cash flow potential and bond discount that feed into the estimated $294.71 fair value.
Result: Fair Value of $294.71 (UNDERVALUED)
Still, two pressure points could upend this Charter Communications undervaluation story. Higher capital needs or weaker free cash flow would quickly challenge the current fair value assumptions.
Find out about the key risks to this Charter Communications narrative.
Next Steps
Sentiment around Charter Communications is clearly split right now, and this kind of divide is when independent work really matters. Move fast, pull apart the assumptions on both sides, and weigh the 2 key rewards and 2 important warning signs.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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