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Charter Communications (CHTR): A Buy on Strong Prospects

On Nov 9, 2015, Zacks Investment Research upgraded Charter Communications, Inc. CHTR - a leading cable MSO (multi service operator) in the U.S - by a notch to a Zacks Rank #2 (Buy).

Charter Communications reported mixed financial results in the third quarter of 2015. While the bottom line outpaced the Zacks Consensus Estimate, the top line lagged the same. The company, however, reported a surprise gain of around 12,000 video customers in the third quarter of 2015, which buoys the prospects of the company, going ahead.

Recently, Charter's shareholders sanctioned the company's impending buyouts of Time Warner Cable Inc. TWC and Bright House. Notably, the Time Warner Cable and Bright House deals are likely to benefit Charter in terms of geographic expansion and operating cost synergies, which in turn, will boost its bottom line and free cash flow. Charter will also be in a position to offer enhanced services and additional streaming video product options to its customers.

U.S. cable MSOs (multi service operators) have a reason to smile as a report by Leichtman Research Group Inc. (LRG) has revealed encouraging data, which illustrates cable MSOs' dominance in the high-speed broadband (Internet) market, steering past telecom service providers. This comes as a respite at a time when cable TV operators have been losing foothold in the core video market to fiber-based telecom operators and online video streaming service providers. As of Sep 30, 2015, Charter Communications had 4.132 million video, 5.092 million high-speed Internet and 2.551 million voice customers in the Residential segment. In particular, during the reported quarter, the company gained 12, 000 video, 131,000 high-speed Internet and 37,000 voice customers.

Meanwhile, Charter is developing its cloud-based user interface named Spectrum Guide, to run on all set-top boxes offering advanced video navigation. The company is also developing Charter TV applications for its video-on-demand content. Additionally, Charter has also independently certified its new WiFi router to provide wireless services. The company is also close to launching a new set-top box called World Box which promises to offer great entertainment at a low cost.

Notably, the Business Services segment is a major growth driver for Charter. In the third quarter of 2015, commercial revenues totaled $286 million, up 13.2% year over year. The company intends to double revenues at this segment over the next 4 to 5 years. As of Sep 30, 2015, Charter Communications had 142,000 video, 349,000 high-speed Internet and 211,000 voice subscribers in the Business Services segment. The company added 4,000 video, 16,000 high-speed Internet and 11,000 voice customers in the third quarter of 2015.

On the flip side, online video streaming service providers such as Netflix Inc. NFLX , Hulu.com, YouTube, Go90 of Verizon Inc. VZ etc., have become a severe threat to cable TV operators. Online video providers provide an extremely cheap source of TV programming. This business model is gaining momentum, especially amid volatile economic conditions. Charter is no exception to the strong competition offered by this business model.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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