On Monday, Charter Communications (NASDAQ:CHTR) faced downgrades by analysts from two financial institutions, citing increased competition and risks affecting the company's future performance. Wells Fargo (NYSE:WFC) shifted its rating from Overweight to Equal Weight, significantly reducing the price target to $340 from $460. The adjustment by Wells Fargo reflects concerns over the competitive landscape and the potential impact on the company's earnings before interest, taxes, depreciation, and amortization (EBITDA).
The Wells Fargo analyst noted the challenges ahead for Charter Communications, including competition and risks associated with the Affordable Connectivity Program (ACP) that are expected to diminish and cloud forecasts. They highlighted that without EBITDA acceleration, the company's multiple would not expand. The analyst also pointed out that it will be approximately two years before the company sees a decline in capital intensity, which is considerable time given the competitive environment. Consequently, the firm's valuation multiple has been decreased from 7.5x to 6.7x EV/EBITDA, and the price target has been adjusted downward.
Similarly, JPMorgan (NYSE:JPM) changed its stance on Charter Communications, downgrading the stock from Overweight to Neutral and setting a new price target of $370, down from $445. The JPMorgan analyst attributed the downgrade to several factors, including weaker broadband subscriber trends expected to persist through 2025, slower EBITDA growth, rising capital expenditures, and uncertainties around the ACP program. The analyst expressed surprise at the significant slowdown in subscriber momentum in the fourth quarter of 2023, especially compared to competitors, and pointed to increased availability of Fixed Wireless Access (FWA) and aggressive promotions as contributing factors.
JPMorgan's revised forecast anticipates a net loss of 100,000 broadband subscribers in 2024, contrasting with a previous estimate of a 150,000 subscriber increase. The firm's 2024 EBITDA projection has been lowered to $22.40B, a 2% decrease from the prior estimate of $22.79B. This reflects anticipated lower revenue due to a decrease in subscribers and average revenue per user (ARPU), as well as increased costs related to programming, sales, marketing, and other expenses. Additionally, JPMorgan has increased its capital expenditure estimates for 2024 and 2025 to $12.30B and $12.25B, respectively, following updated guidance from Charter Communications that extends the network evolution build to 2026. These changes have led to a revised free cash flow estimate of $2.89B for 2024. The new price target of $370 implies a valuation of 7.2 times the estimated 2025 EBITDA and 17.0 times the estimated 2025 fully-taxed free cash flow per share.
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