Cable Operators

Charter Rides Phone Wave

12/08/2006 7:00 PM Eastern

Pali Research media analyst Richard Greenfield initiated coverage of Charter Communications last week with a “buy” rating and $4.50 stock-price target. The cable operator might not have the best assets, but it’s poised to rise on optimism surrounding the rollout of cable voice services, he said.

“Charter does not have the largest clusters, the best demographic subscribers, the highest-quality plant, or the industry’s top management team,” Greenfield wrote, adding that he did not expect the company to expand margins or increase average revenue per subscriber to the level of its larger peers.

But Charter’s voice rollout is beginning to improve overall results. Charter has about 340,000 voice customers and expects to make the service available to 6.5 million to 7 million homes within its footprint of 11.8 million homes by year-end.

Greenfield noted revenue growth has accelerated to 11% in the third quarter, from 8% in the first quarter, and that cash-flow growth has risen from a negative 1% to a positive 7% in the same period. Greenfield expects that momentum to continue in the fourth quarter, with revenue growth of at least 11% and cash flow rising 9%.

In 2007, Greenfield predicts revenue will grow 13% and cash flow will rise 15%. Investors appear equally optimistic — Charter’s stock price has more than doubled from $1.21 each on Jan. 3 to $3.18 each on Dec. 7.

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