Company Overview: Cable One, Inc. (NYSE: CABO) is a telecommunications company that operates in 24 Western, Midwestern, and Southern states, providing integrated data, video, and voice services through its Sparklight and Clearwave brands. It offered broadband services to roughly 1.13 million household and commercial clients out of over 2.6 million residences passed, and Gigabit (GB) data services to about 98% of its residences passed as of June 30, 2021. CABO earns most of its income from three main product lines: 1) Residential Data, 2) Residential Video, and 3) Business Services.
Key Takeaways from Q2FY21 (ended June 30, 2021)
Revenues & Gross Profit Key Highlights; Analysis by Kalkine Group
On August 20, 2021, CABO announced a quarterly cash dividend of USD 2.75 per share, which was paid on September 17, 2021, to shareholders of record on August 31, 2021. Over the last five years, the company has regularly paid dividends, as also reflected in the chart below (every D represents a dividend payment):
Consistent Dividends (Data Source: Refinitiv)
On May 03, 2021, CABO paid USD 2.0 billion in an all-cash transaction to acquire the remaining ~85% stake in Hargray Acquisition Holdings, LLC, a facilities-based regional communications provider. Hargray serves approximately 125,000 residential and corporate clients in 14 markets across Alabama, Florida, Georgia, and South Carolina. This acquisition increases CABO's footprint in the Southeast US and allows the company to benefit from Hargray's fibre expansion experience and expertise.
PSU and Subscriber Data in Q2FY21: A PSU (primary service unit) represents a single subscription to a particular service offering.
Balance Sheet & Liquidity Position
Key Metrics: In Q2FY21, CABO's EBITDA and net margins were 51.3% and 26.7%, vs. the industry median of 26.8% and 8.4%, respectively. In addition, ROE for the current quarter was 6.5%, higher than the industry median of 3.9%.
Profitability Profile; Analysis by Kalkine Group
Top 10 Shareholders: The top 10 shareholders together form around 56.17% of the total shareholding, while the top 4 constitute the maximum holding. T. Rowe Price Associates, Inc. and Graham (Donald E) hold the maximum stake in the company at 13.02% and 8.75%, respectively, as also highlighted in the chart below:
Top 10 Shareholders; Analysis by Kalkine Group
Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)
Source: Analysis by Kalkine Group
*% Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.
Stock Recommendation: Over the past month, CABO corrected ~13.22%. The stock is currently trading below the mid-point of its 52-week range of USD 1,674.35 to USD 2,326.80. We have valued the stock using the EV/EBITDA multiple-based illustrative relative valuation method and arrived at a target price with an upside of low twenties (in percentage terms). We believe that the company can trade at a premium compared to its peer's average, considering its robust EBITDA and net margins and strong ROE. We have taken peers like Charter Communication, Inc. (NASDAQ: CHTR) and Altice USA, Inc. (NYSE: ATUS). Considering the significant increase in top and bottom-line performance, strategic expansion plans, improvement in ARPU, steady dividend yield, and current valuation, we give a "Buy" recommendation on the stock at the current price of USD 1,727.00, down ~0.17% as of October 13, 2021, 2:34 PM ET.
CABO Technical Chart, Data Source: REFINITIV
Note 1: The reference data in this report has been partly sourced from REFINITIV.
Note 2: Investment decision should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above.
Technical Indicators Defined
Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.
Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.
Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.
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