Raymond James: Charter's Fee Cash Flow Will Rise On Declining Capex

Charter Communications, Inc. CHTR underperformed Street expectations in its fourth-quarter earnings. The sharp, bottom-line miss didn’t faze Raymond James, though.

The Rating

Analyst Frank Louthan maintained a Strong Buy rating on Charter and raised his price target from $365 to $400.

The Thesis

Louthan expressed optimism around the “economics” of the company, as Charter exceeded estimates in residential customer counts, revenue and earnings before interest, tax, depreciation and amortization (EBITDA).

“Our thesis remains that Charter as a scale provider has the ability to gain incremental share of current passings and can continue to profitably grow EBITDA and FCF/ share with or without video subscriber growth,” he wrote in a note.

Consistent with Louthan’s forecasts, Charter guided for an annual capex decline, which drove a stock pop following the fourth-quarter earnings print. The analyst anticipates waning capital intensity to drive growth in free cash flow.

“Investors have seen this management team reduce capital intensity and its real and sets a new baseline, in our view,” Louthan wrote. “As such, it should have a positive impact on FCF for street models.”

Raymond James increased its revenue, EBITDA and FCF estimates to account for capex declines and expected share repurchases.