Bernstein Positive On Telecoms: A Stock-By-Stock Breakdown

Bernstein has launched coverage of the telecom, cable and satellite sector with a mostly positive outlook and bullish recommendations on several stocks.

The Analyst

Bernstein analyst Peter Supino initiated coverage of the industry with the following ratings and price targets:

AT&T Inc. T: Market Perform, $36 price target. 

T-Mobile US Inc. TMUS: Outperform, $103 price target.

Charter Communications Inc CHTR: Outperform, $541 price target. 

Altice USA Inc. ATUS: Outperform, $38 price target.

Comcast Corporation CMCSA: Market Perform, $50 price target. 

Verizon Communications Inc VZ: Market Perform, $63 price target. 

DISH Network Corp DISH: Underperform, $29 price target. 

The Takeaways 

AT&T: The company's executive team is likely secure unless Warner Media starts to show cracks, Supino said in the Tuesday initiation note.

The company’s mobility business is resilient and possibly improving, and the 5.5% yield is attractive with a “non-scary” 60% payout ratio, the analyst said.

“With the balance sheet still stretched and Entertainment and Warner risks skewing to the downside, we will stay tuned.”

Altice: The company is a strategic asset in a consolidating industry, Supino said. Its $20 offer for mobile service and its Altice One device — an all-in-one modem, router and streaming box — “should power improving subscriber results.”

Charter: The company has a “dominant internet service business,” Supino said, adding he expects more than 25% FCF/share growth from now through 2023.

The analyst expects return on investment capital to improve from 4% to above 9% over the same timeframe.

“As the U.S.’s largest common stockholder-controlled fiber network and with Liberty owning 25% of the equity, CHTR is the fulcrum asset in industry consolidation.”

T-Mobile: Supino is “bullish on T-Mobile’s flywheel of undercutting incumbents while investing in its network.” He also likes the mobile carrier's management and said it’s free of drags from any legacy revenue streams.

T-Mobile will thrive with or without an in-the-works merger with Sprint Corp S, the analyst said. 

Comcast: Supino is less bullish because of caution on NBCU’s broadcast and cable network segments, and the high price and “unclear strategy” of the deal in which Comcast last year bought the majority of shares of European TV giant Sky Plc.

Verizon: With potential for new revenue from 5G Home and Enterprise, the risk-reward seems balanced, though there’s a little concern about increasing competition, Supino said. 

Still, “Verizon is the mobile industry leader with an exciting network vision and upside to its dividend payout ratio,” the analyst said.

Dish: FCC network buildout requirements and declining Pay TV service mean DISH’s debt and “serious” capital requirements are rising faster than its enterprise value, Supino said. Pay TV fundamentals have collapsed over the past several years, he said. 

T-Mobile-Sprint Merger

The proposed $26.5-billion merger of T-Mobile and Sprint faces a major hurdle in a lawsuit by states that want to block the marriage.

If the merger goes through, it would add “enormous capacity and optionality” for T-Mobile, the analyst said.

But, even without Sprint, T-Mobile’s 17% market share could be expected to rise at Sprint’s expense, he said. 

Price Action

Altice shares were up 3.27% at $5.06 at the time of publication. Comcast shares were down slgihtly at $45.64. Verizon shares were down 0.79% at $60.08, while AT&T was down slightly at $37.88. 

T-Mobile shares were trading slightly positive at $79.78. Charter shares were up 1.52% at $439.49. Dish shares were up 0.55% at $34.57. 

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