Should I Buy Charter Communications (CHTR)? Finance YouTuber Analysis

The YouTuber sees Charter Communications as a high-potential 'bet' with a possible 5x return, suggesting the company could buy back its shares. He contrasts it with Comcast, which he views as more expensive with lower upside.

“I still think that this is a bet. It might be a free 5X. They can buy back the company in a few years.”

Sven Carlin suggests avoiding Charter Communications, despite previously discussing it as a positive asymmetric risk/reward bet. He now views it as having a similar negative long-term outcome to Comcast, but with less upside potential if things go well. Charter has half the revenue of Comcast but similar debt levels, making it more leveraged and riskier, and its business model faces similar challenges from high competition and capex.

“Charter perhaps is a longer term same outcome negative as Charter, but less upside on the positive if things go well. Because Charter has half of the revenues a little bit less, but equal debt. That is the problem with Charter, and that is why it is so worse than Comcast.”

The speaker strongly advises against Charter Communications due to its high debt, secular decline in its core business (cord-cutting), and lack of clear operational turnaround strategy. They see no bottom for the stock and believe it's not a viable investment at any price.

“No. Too much debt. Too much secular decline. Just no. No. At no price. No price. It reminds me of I'm This is the worst stock in the world.”

The analyst identifies Charter Communications as a potential winner despite the generally disliked telecom sector. A recent tax law change allowing stepped-up depreciation and expensing is projected to boost its free cash flow by 39%, or $1.7 billion, acting as a significant catalyst. An upcoming merger with Cox Communications could also provide a competitive advantage.

“I just added Chartered Communications, ticker CHTR, to my list after plunging 33% on its most recent earnings, but undiscovered upside here that could make it a surprise winner.”

Charter Communications is identified as a major beneficiary of the tax changes, with a potential 39% boost to its free cash flow. Despite recent disappointing earnings, the stock is trading at a significant discount (2.4 times price-to-cash flow) compared to its 5-year average (4.6 times). Hogue projects a 168% upside if the valuation multiple returns to its average, combined with the cash flow increase.

“Analysts believe Charter could see a 39% boost to its free cash flow from this bill, the highest increase in the communication services sector, equating to about another $1.7 billion in cash from its current $4.3 billion estimate. The drop has taken shares to just 2.4 times on a price to cash flow basis, a huge discount to the average 4.6 times cash flow ratio it's traded at over the past 5 years... Then times the 39% cash flow boost pushes this one up 168% from here.”

The analyst believes the new deal with Disney is a win for Charter, as it allows them to become a distribution partner for Disney's streaming services. This generates additional margin from their profitable broadband business, helping to offset declines in linear TV. It positions Charter to adapt to the evolving TV landscape by bundling broadband with streaming services.

“Charter is making more money on broadband than it is on linear TV so if they get a little cut of every subscriber that's subscribing to Hulu or Disney plus that's good news for them because that becomes margin that they can add to their profitable side of their business.”

The analyst recommends buying Charter Communications (CHTR) due to its strong free cash flow, growing revenue and EBITDA, and a projected 24-25% annualized return over a decade. He believes the stock is currently undervalued, trading at 8.6x forward EV/EBITDA, which is a new low, and expects multiple expansion to 10x. The company's installed network infrastructure provides a competitive advantage, and management's commitment to reducing debt further strengthens the investment thesis.

“I own the stock and I think I'm going to buy some more at this level.”