No Cord Cutting: KeyBanc Prefers Cable Over Wireless In Broadband Picks

Cable stocks warrant a premium valuation, as the sector is a better business than wireless, KeyBanc Capital Markets said in an industrywide report.

The Analyst

KeyBanc's Brandon Nispel and Maddie Schrage initiated coverage of the following stocks:

• Altice USA Inc ATUS: Overweight, $25 price target.
• Cable One Inc CABO: Sector Weight, $700 fair value.
• Charter Communications Inc CHTR: Sector Weight, $280 fair value.
• WideOpenWest Inc WOW: Sector Weight, $9 fair value.
• Coverage of Comcast Corporation CMCSA was transferred: Overweight rating, $38 price target.

The Thesis

The analysts named four reasons why the stocks remain more favorable to own:

• Prospects for higher growth.
• Lower capital intensity should result in expanding free cash flow profiles.
• Superior profitability.
• Less competition.

Cable broadband subscriber and market share growth is expected to slow, which implies investors may want to be more selective in their stock ownership, according to KeyBanc. 

Altice

• Altice boasts an attractive broadband business which should generate steady or improving subscriber trends.
• The recent end to a programming dispute should yield better products for customers. 
• The company's industry-leading adjusted EBITDA margins makes its business "more defensible."

Cable One

• Cable One's growth prospects are "limited" in existing markets.
• The company's business is exposed to competition.
• The company may need to establish a "more aggressive inorganic growth strategy" to finance its growth.

Charter

• The premium awarded to Charter's stock above-average broadband subscriber growth is "overvalued."
• Charter's broadband growth is likely to decelerate at a faster rate compared to its peers.
• The company's lower bundled customer mix makes it less favorable to own compared to some of its peers.

WideOpen West

• WideOpen faces the most competition in the broadband space.
• While the company is improving organic broadband subscriber growth, it is also taking a rate increase.
• Nevertheless, the stock's valuation at 6.5x 2019 EBITDA estimates is a discount to cable peer average at 7.8x, so the stock is "relatively inexpensive."

Related Links:

Altice Has 50% Upside Potential, Buckingham Says In Bullish Initiation

Charter Communications Succeeds In Turnaround Effort, Wells Fargo Says In Upgrade