Altice USA: Downgrade To Neutral As Investment Case Broke In Q3

(Preview) Company Update (ATUS US) (Downgrade to Neutral)

Summary

• We're downgrading our rating on Altice USA from Buy to Neutral as Q3 results showed that our investment case may be broken.

• Altice USA is losing Broadband market share to Verizon's Fios, and such telco fiber competition is intensifying. EBITDA has started falling.

• We believe Altice USA may be fundamentally uncompetitive due to company-specific operational issues such as excessive cost cuts.

• Management's turnaround initiatives are unproven, but are certain to reduce EBITDA and free cash flow significantly in 2022.

• At $18.05, Altice USA stock has a double-digit free cash flow yield, but this is outweighed by the speculative nature of the investment case.

Introduction

We're downgrading our rating on Altice USA from Buy to Neutral.

Our downgrade follows Q3 2021 results released after markets closed on Thursday (Nov. 4). While the results were positively received by the market, with ATUS stock finishing Friday up 9.9%, we're concerned that:

• Competition in ATUS markets is already intensifying