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mid-cap

Buy Scenario on This US-Listed Cable Provider – ATUS

Nov 19, 2021 | Team Kalkine
Buy Scenario on This US-Listed Cable Provider – ATUS

Altice USA, Inc.

ATUS Details

Altice USA, Inc. (NYSE: ATUS) provides broadband communications and television services in the US, notably under the Optimum and Suddenlink brands. It serves over five million residential and business clients with internet, television, telephony, and mobile services. As of September 30, 2021, ATUS's footprint spans 21 states via a fiber-rich hybrid-fiber coaxial (HFC) broadband network and a fiber-to-the-home (FTTH) network, with roughly 9.2 million total passings.

Latest News:

  • Expansion of Fiber Network: Lightpath, an ATUS subsidiary, announced a 50-mile extension of its all-fiber network in the Boston area on November 09, 2021, following its entry into the market through numerous acquisitions in June. With the addition of 50 route miles to the network, the total route miles in the Boston metropolitan region now exceeds 130.
  • Share Repurchases: ATUS repurchased 2.6 million shares during Q3FY21 for a total purchase price of USD 79.4 million, at an average price of USD 30.63. As a result, it had 454.65 million Class A and Class B shares outstanding as of September 30, 2021.

9MFY21 Results:

  • Slight Increase in Sales: The company reported a minor increase of 2.86% in revenues to USD 7.57 billion during 9MFY21 (ended September 30, 2021) from USD 7.36 billion during 9MFY20.
  • Surge in Net Income: ATUS recorded a massive increase in net income to USD 750.22 million during 9MFY21 vs. USD 107.21 million during 9MFY20.
  • Leveraged Balance Sheet: As of September 30, 2021, the company had cash and cash equivalents of USD 232.45 million and total debt of USD 26.77 billion.
  • Improvement in ARPU: The company recorded an increase in Average Revenue Per User (ARPU) to USD 140.73 as of September 30, 2021, from USD 138.16 as of September 30, 2020.

Key Risks:

  • Supplier Concentration Risk: ATUS purchases set-top boxes and other customer premise equipment from a small number of suppliers since its cable systems employ one or two proprietary technological designs. As a result, any violation of the contract by these significant vendors might harm the company's operations and finances.
  • Increasing Programming and Retransmission Costs: The company may not be able to pass the burden of the rising programming and retransmission expenses on to customers. In addition, disputes with programmers and difficulty keeping or securing popular programming can harm customer relationships and lead to loss of clients, negatively impacting its financial performance.

Outlook:

  • FY21 Cash Capex and FCF Estimates: On November 04, 2021, ATUS stated that it anticipates its FY21 Cash Capex to be about USD 1.3 billion, with an expected Free Cash Flow (FCF) of around USD 1.6 billion.
  • FY22 Estimates: ATUS aims to further boost investments in crucial growth projects and raise its cash capital expenditures to USD 1.7 – 1.8 billion in FY22, including the costs of opening 50 – 75 additional retail outlets.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(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.

ATUS Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

ATUS's stock price has fallen 53.31 in the past six months and is currently trading close to the lower end of its 52-week range of USD 16.07 to USD 38.30. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 43.96. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 20.52.

Considering the significant correction in the stock price, strong bottom-line performance, expansion endeavors, associated risks, and current valuation, we recommend a "Buy" rating on the stock at the current price of USD 17.21, down 6.37% as of November 18, 2021, 2:16 PM ET.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.