A day after expressing at least some optimism that Altice USA, after a disappointing Q4, might have a little gas left in the tank to drive its way out of its most recent hole, influential media analyst Craig Moffett has changed course on the stock, downgrading his outlook to “neutral,” and slashing his 12-month price target on shares to $15 from $33 previously.
Altice USA stock fell more than 20% and hit a new 52-week low on Thursday — $11.12 per share — before closing at $11.83 down 17.8%. With Wednesday’s falloff, the shares are down nearly 27% since the beginning of the year.
The company lost about 2,000 broadband subscribers in Q4 — and shed 3,000 for the year — slightly better than analysts’ consensus expectations and spurring some optimism that it could have been worse. Altice CEO Dexter Goei also outlined a plan to accelerate its fiber buildout and reverse the downward trend. Many analysts took the bait, and Moffett wrote Wednesday that Altice USA could probably be fixed, but it wouldn’t be easy and it would take some time. By Friday morning, after the stock cratered, his attitude changed.
Moffett isn’t the only analyst to downgrade the stock, but his mea culpa comes at a time when the cable sector itself is under pressure from slowing growth in broadband and rising competition from streaming video and telco companies.
“Wrong. Wrong story. Wrong time. Wrong call (on our part) to have stuck around too long,” Moffett wrote Friday. “Just … wrong. There’s a time for highly levered fix-it stories. This isn’t that time.”
Altice shares were down about 2% in pre-market trading Friday to $11.59 each.
In his Thursday note, Moffett wrote that Altice has been in a similar situation in a previous life as Cablevision Systems, in 2013. At that time, the company was faced with industry-leading customer penetration rates for its service, which made growth difficult. While the rest of the market thought Cablevision was on its last legs, -- including Moffett — Altice swooped in and paid top dollar for the asset, claiming it could right the ship with a more stringent cost structure. That worked for a while, but now, the company is faced with a familiar dilemma.
“Altice is now entering what is likely to be a multiyear ‘fix-it’ phase,” Moffett wrote. “At a time of rising interest rates and falling risk appetites, a company with badly battered near-term growth prospects, and with a higher warranted WACC [Weighted Average Cost of Capital], Altice USA looks far less compelling than it had. We grossly overestimated the market’s willingness to underwrite their turnaround.”
Also: Broadband Slowdown Forces Analyst to Go Negative on Cable Sector
Moffett still believes that Altice USA can be fixed -- he was especially hopeful about Suddenlink’s prospects -- but he noted it’s probably going to take longer than most thought. Where he was most wrong, he added, is in expecting the market to ignore the near-term challenges and look toward longer-term growth.
“Without a catalyst — such as a take-private that we once viewed as a reason to own the stock (that didn’t work out so well) — we have much lower expectations for a near term rebound to what we still believe is a materially higher warranted value,” Moffett wrote.
He’s now forecasting that Altice will have no real broadband growth in 2022 (about 9,000 new customers), and will add 34,000 high-speed data customers in 2023.He doesn’t expect growth to approach 219 levels (75,000 additions) until 2025 (72,000).
“Their steps to expand their footprint through edge-outs and, where available, government deployment subsidies, are welcome,” Moffett wrote. “But they will take time. We project no real broadband unit growth for 2022, and only modest growth in 2023.” ■
