On Friday, Pivotal Research boosted the price target for Charter Communications (NASDAQ:CHTR) to $435 from $400, while reiterating a Buy rating on the stock. The firm's decision came in response to Charter's second-quarter financial results, which surpassed expectations. Charter's reported revenue showed a slight increase of 0.2%, and its EBITDA growth was around 3%, higher than analysts had forecasted. Additionally, the company's free cash flow in the second quarter was notably above projections, in part due to favorable working capital changes.
The analyst highlighted that Charter's performance in the second half of the year is expected to improve, with cost trends leading to elevated EBITDA expectations. This positive outlook has prompted Pivotal Research to adjust its EBITDA and free cash flow projections upward for the year 2024 and beyond. The firm's analysis countered the prevailing investor sentiment, which had leaned towards a bearish stance due to concerns over potential competition and the end of the Affordable Connectivity Program (ACP).
Charter's recent performance has demonstrated resilience against competitive pressures, such as the expansion of Fiber-to-the-Home (FTTH) and Fixed Wireless Access (FWA). The analyst underscored the time-intensive nature of FTTH roll-outs and Charter's competitive advantages, including a superior and more affordable converged offering in a largely duopolistic market. Furthermore, the analyst pointed out that Charter's stock had been trading below its replacement value, at 6.4 times EBITDA, which is considered attractive.
Pivotal Research also emphasized the long-term growth potential for Charter, noting that once the company completes its footprint expansion, free cash flow is expected to increase significantly. With the revised price target of $435, Charter's stock would trade at 7.3 times the projected 2024 EBITDA and 12.7 times earnings per share (EPS), compared to the current multiples of 6.8 and 10.7, respectively. The firm's reiterated Buy rating reflects confidence in Charter's financial trajectory and market position.
In other recent news, Charter Communications has reported notable financial and operational developments. The company's share repurchase activity in June showed a significant increase, with total repurchases for Q2 2024 reaching $435 million, surpassing both Visible Alpha consensus and Citi's projection. Despite this, Citi has maintained its Sell stance on Charter shares. Goldman Sachs also initiated coverage on Charter Communications with a 'Sell' rating, citing potential challenges from competitive pressures.
In terms of partnerships, Charter Communications extended its distribution agreement with Paramount Global. This multi-year deal will continue to provide Spectrum TV customers access to Paramount's portfolio of cable networks and CBS stations and introduce Paramount's direct-to-consumer streaming services to Spectrum packages at no extra cost.
Charter has also been active in managing its debt. It disclosed the pricing for its tender offer concerning the company's 4.908% senior secured notes due in 2025 and completed the issuance of $3 billion in senior secured notes, divided equally into two sets due in 2029 and 2034. These recent developments offer insight into the company's strategic moves and the external factors influencing its operations.
InvestingPro Insights
Charter Communications (NASDAQ:CHTR) has been a topic of interest following its second-quarter financial performance, which exceeded expectations. Pivotal Research has recognized this strength, raising its price target and maintaining a Buy rating. In line with these developments, InvestingPro data shows Charter with a market capitalization of $58.76 billion and a P/E ratio that stands at 11.65, indicating a market recognition of its earnings power. The adjusted P/E ratio for the last twelve months as of Q1 2024 is even more attractive at 9.93, which could suggest that the stock is undervalued relative to its earnings potential.
Two InvestingPro Tips for Charter Communications highlight that management's aggressive share buybacks could be a signal of confidence in the company's value, and the company's status as a prominent player in the Media industry provides it with a competitive edge. However, it's worth noting that six analysts have revised their earnings downwards for the upcoming period, which could indicate potential challenges ahead. Moreover, Charter does not pay a dividend, focusing instead on reinvesting in its growth and share repurchases.
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