The three major publicly traded cable distribution stocks, up about 34% this year as positive sentiment around broadband growth has driven shares, could be even higher if private valuations are considered, according to a report by Bernstein media analyst Peter Supino.
The three top publicly traded cable distribution stocks -- Comcast, Charter Communications and Altice USA -- have ridden a wave of strong sentiment fueled by even stronger broadband additions. But using data from a recent private equity purchase in the sector -- Stonepeak Infrastructure Partners $8.1 billion purchase of Astound Broadband -- Supino believes that the stocks’ prices could be between 32% and 91% higher.
Supino estimated that Stonepeak valued Astounds at about 14.1 times the broadband company’s estimated $576 million 2020 cash flow. Considering that Astound is essentially an overbuilder in most of its markets, faces stiffer competition and has no inherent synergies with its new owner, applying that same valuation to publicly traded cable stocks would result in some serious upside.
Astound consists of four companies -- RCN, Grande Communications, Wave Broadband and EnTouch Communications -- with about 1 million subscribers across eight states and Washington , D.C., and has about 23,000 miles of fiber in its network. Stonepeak partnered with Patriot Media, which had been running the systems for former owner TPG for years, to continue to manage the systems. The deal is expected to close in the second quarter or 2021.
“Astound's sale price appears to be highly relevant to Altice, Charter and Comcast,” Supino wrote. “First, Stonepeak does not appear to bring material operating synergies (adjacent sales, billing systems, real estate, etc.) to the deal, so ‘the price is the price’ (notwithstanding tax assets). Second, we believe that Astound's systems are frequently third-to-market ‘overbuilders,’ which means they participate in markets which are inherently more competitive than the average of the US cable industry. Third, we do not see major fat to cut—TPG has been the owner of Astound, so we believe that the organization is efficient.”
Applying those multiples would lift Altice USA’s stock price, ($34.07 on Dec. 1) up 91% to $65 each; Charter would rise 32% from $662.25 per share to $876.70 each and Comcast would gain 47% from $51.02 per share on Dec. 1 to $74.90 each.
