Charter: Solid Q4 Earnings Growth Despite Lower Net Adds

(Preview) Company Update (CHTR US) (Buy)

Summary

• Net adds decelerated in Q4 2021, and the prior-year quarter had U.S. election ad spend, but EBITDA still grew 7.7% year-on-year.

• Lower net adds were due to low market churn; Charter's own churn was also low across its footprint - it did not lose out to competitors.

• Charter is doing more high split upgrades and rural expansion; its Mobile net adds re-accelerated during Q4. These will help future growth.

• Even assuming 6% baseline EBITDA growth and new cash taxes, we believe Free Cash Flow / Share could be near $70 by 2025.

• With shares at $590.47, we expect an exit price of $1,378 and a total return of 133% (24.1% annualized) by 2025 year-end. Buy.

Introduction

Charter shares rose 5.3% on Friday (January 28) after Q4 2021 results.

We initiated our Buy rating on Charter in January 2020. Subsequently, CHTR stock first rose by 62% by September 2021, but has fallen back by 29% since, giving an overall return of 16% over 2 years.

The bear case is that increased fiber overbuild and new 5G fixed…