Spin-Off Should Allay Many Concerns Regarding Altice; Barclays Upgrades

Telecom and cable company Altice USA Inc ATUS announced Jan. 8 plans to spin-off its U.S. unit, restructure its European operations, revamp its content strategy and reappoint region-specific senior managers.

The Analyst

Barclays analyst Kannan Venkateshwar upgrades Altice from Equal-weight to Overweight, and increased his price target from $22 to $26.

The Thesis

Since its IPO, Altice shares were weighed down by concerns over the complexity of holding structure, high leverage across the group, operational slowdown at the parent company, and a slowdown in the U.S. cable broadband subscriber growth, Venkateshwar said in a Tuesday note.

Additionally, the analyst said the company's expressed intent to acquire other assets in the U.S. with equity even amid its high debt levels and its low float served as deterrents.

However, the proposed spin-off, and decoupling the relationship with the parent should address many of these concerns, Venkateshwar said. The separation also makes it easier for other interested in acquiring cable assets to engage with Altice, the analyst added.

"Incrementally, the company's decision to buy back stock and reduce leverage near term should add more credibility to its margin guidance," Barclays said.

With the company expressing comfort with the fourth quarter consensus estimates, Barclays said another layer of near-term uncertainty is removed.

Barclays also said the valuation of the company provided a good buffer against execution risk.

The Price Action

Altice shares are down about 30 percent over the past year, although shares gained close to 10 percent on Jan. 9 in reaction to the announcement concerning the spin-off.

At time of writing, the stock was rallying 3.9 percent to $22.78.