Analyst Initiates Altice at ‘Hold’

Tough High-Yield Debt Market, Synergy Doubts Hound Stock
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Pivotal Research Group CEO and senior media analyst Jeff Wlodarczak initiated coverage of European telecom giant Altice at “hold,” adding that the company faces big challenges in its push into the U.S. cable market.

Altice made its name in the European telecom market, acquiring several wireless companies on the continent – including France’s SFR – before turning its sights on the U.S. cable business earlier this year. Using its then-robust stock, Altice agreed to acquire Suddenlink Communications in May in a deal valued at about $9.1 billion. In September, it agreed to acquire Cablevision Systems in a cash and assumed debt deal valued at about $17.7 billion.

Altice’s shares have plunged in the last several months – Wlodarczak wrote they are down about 60% off its mid-summer highs, as investors who once were willing to bake future acquisitions into the stock price became increasingly nervous that aggressive cost cuts would be difficult to execute. The high-yield debt markets also appear to be getting skittish – the analyst wrote that Altice’s Oct. 1 debt/equity raise for the Cablevision deal was “poorly received.”

“This leaves investors to focus on the core business, which appears to have an increasingly choppy outlook at least through ’16,” Wlodarczak wrote. Adding to the difficulty was a Cablevision proxy filing earlier this month that showed it expects capital expenditures to rise in the next few years, which could impact Altice’s cost-cutting hopes.

Wlodarczak wrote that despite the challenges, he believes Altice stock is fairly valued and that both the Suddenlink and Cablevision deals will be completed.

“We believe Altice’s move into the U.S. makes sense strategically as we view the U.S. as a less competitive market than Europe and Altice has the potential to roll-up the balance of the U.S. cable industry long term,” Wlodarczak wrote.

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