Charter Stock Soars on Q4 Results, Cap Ex Guidance

Stock rises nearly 15% in early trading; capex to fall by $2 billion in 2019
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Charter Communications stock rose as much as 14.6% in early trading Thursday, after the company reported strong Q4 financial results and said it expected capital expenditures to fall by $2 billion this year.

Charter stock rose as high as $332.24 per share (up 14.6% or $42.33 per share) in early trading Jan. 31. The stock was priced at $330.07 (up 13.9% or $40.16 per share) at 10:11 a.m. on Thursday.

The stock, which was down about 15% in 2018, is quickly erasing that deficit with today’s early gains. At it's high point earlier today, Charter shares were up 16.6% for 2019.

Charter said that its all-digital and DOCSIS 3.1 build-outs have been completed, which should dramatically reduce capital expenditures for this year and for the foreseeable future. Capital expenditures should be about $7 billion in 2019, $2 billion less than the $9.1 billion it spent in 2018. At the same time, the cable operator expects subscriber metrics to improve, noting that churn characteristics in the former Time Warner Cable and Bright House Networks systems it acquired in 2015 are getting better.

In a research note, MoffettNathanson principal and senior analyst Craig Moffett wrote that uncertainty around capital expenditures -- investors knew it would go down but not by how much -- and the company’s reticence to give guidance has hurt the stock in the past. But now, with such a dramatic fall in capex -- most models didn’t see it reaching $7 billion for at least three years -- and strong financial and operating results, the veil around Charter has been lifted.

“Charter can legitimately be seen as a growth story again,” MoffettNathanson principal and senior analyst Craig Moffett wrote.

Charter chief Tom Rutledge speaking at CableTec Expo 2017

Tom Rutledge

On a conference call with analysts to discuss Q4 results, Charter chairman and CEO Tom Rutledge said the capex reduction is expected to be more than just a one-off development.

"We do think that in general, going forward that beyond 2019 and beyond our guidance that capital intensity will come down," Rutledge said. "That's a function of revenue growth and continued opportunities to be more efficient with our capital spending. But it really depends on how fast you're growing, and how fast the opportunities to become more efficient are in terms of your customer service infrastructure."

Charter is rolling out its Worldbox platform “on the increment” across its footprint, Rutledge said, which offers a dramatically improved user interface and should help make Charter video product stickier and more compelling. Rutledge added that Charter’s video strategy is to embrace new technology as well as well as more traditional tenets.

“We embrace where the marketplace is going,” Rutledge said on the conference call. “We want people to use video services on our network. We think there are ways for us to be in the connected video business in a way that provides incremental margins for us, at the same time using the video business to drive our core business which is connectivity.”

He added that while bundled services still make up the bulk of the video side of the business, Charter is willing and able to accommodate consumers that bring their own CPE devices to the equation.

“The mix of direct-to-consumer and the mix of direct-to-consumer hardware -- bring your own device -- in the video space will change over time and we are going to allow it to change as the market dictates and try to make our products work best on every device we provide,” Rutledge continued. “There is still significant opportunities for us to provide CPE devices to consumers, bringing all their services together in one consistent way. That said, there are consumers that definitely want CPE and there may be CPE vendors creating great CPE. We’re open to being a supermarket of video services, however those services develop. We think we can run our traditional models and new models simultaneously. When we look at video usage on our network, it is actually going up.”

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