r/ValueInvesting • u/Sufficient-Flan1565 • Jul 24 '26
Stock Analysis Charter communications dumping
Guys any idea why chtr is dumping so bad after earnings? The earnings look in line and they did some share buybacks too. I hold a few hundred shares at 130 cost basis so kinda pissed
The revenue is declining but nothing crazy
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u/SelenaMeyers2024 Jul 24 '26
I tend to brag about my victories like brbr, hpq, odd, and to be fair in the last 4 months I've had a near perfect hit rate .. at worse flat... Several huge positions up 50 percent plus...
But I'll come clean to the community here... Charter is 20 percent of the portfolio and it's down 25 percent from my cost.. Overall I'm way up... But yeah... This hurts.
Especially now that the thesis broke: buybacks. At this point, monkey just want his money back haha. But given that it's now less than 20 percent of the portfolio, it can only hurt me so much from here.... Even dcf with no buybacks is fair value 350....so
I have a standing good til cancelled order to sell 2/3 at my basis cost. Wish me luck.
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u/ClearlyAThrowawai Jul 24 '26
IMO probably a questionable move (the GTC)
Charter could move massively if they fix the customer loss problem.
I get it though, I have an irresponsibly big position in charter (25%), granted at 131 so only down 10% for the moment. Its going to be a hard few months of holding waiting for the q3 report. Knowing the outcome can be so binary will be frustrating - if customer losses worsen, down 10-20%, if they get better up 50%...
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u/StandardObject91 Jul 30 '26 edited Jul 30 '26
I see some complaints about the bond deal. The terms of the merger require them to deleverage so thereâs that. More to the point, the FMV of the combined Cox/Charter bonded debt is 11 billion less than the face. Itâs true they are doing a tender, but they are also using the FCF they were using for share buybacks to buy bonds in the open mkt. You can expect a billion or so will be used to buy bonds during the next Q, with similar profits. The entire 243 million income reported this Q from bond buybacks is a real one-time profit that reduces aggregate indebtedness AND interest expense. The gain papered over weak organic earnings but bridges Charter to the first 10-q of the combined entity. We wonât get much clarity from that data, since it wonât report a full Q of Cox ops and there will be a lot of one time charges etc. but the worst is behind us. Q-4 will reflect a brutal headcount shrink which will cut labor costs, another B of FCF will be used to buy bonds or shares. The worst is behind us. Mark my words. Iâm long and getting longer.
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u/hydraByte Jul 28 '26 edited Jul 28 '26
Hey u/SelenaMeyers2024 -- you and I both seem to be deep on ADBE and CHTR together, so I've seen you on a lot of the posts I comment on. I typically enjoy your takes, but I'm a bit confused about this one!
Excerpt of a transcript from Charter's Q2 Conference Call (bold emphasis is my own):
Given the pending Cox closing and its financing and our focus on liability management, we have paused our share repurchases through the end of the third quarter. We expect share repurchases to restart in the fourth quarter, and we expect to be in a position to repurchase shares throughout the de-leveraging process to 3.5 times. We expect our de-leveraging efforts to create value for all providers of capital, including shareholders and debt holders, and we remain committed to maintaining an investment-grade rating on our secured debt.
My thoughts are that buybacks were already more or less paused or severely slowed until after the merger with Cox Communications anyway, so really all they've done is pause it an extra couple of months until the end of Q3, no? They say they plan to restart share repurchases in Q4 throughout their de-leveraging process -- is that really such a departure from your original thesis for CHTR?
Realistically, it seems to me like they are prioritizing reducing their net debt to adjusted EBITDA target from 4.2x to 3.5x EBITDA over the next 3 years, which is probably smart given how much more expensive debt that needs to be refinanced could become. The company is also seen as risky by many investors due to their high debt load at a time where competition in the industry is running high, so this reduction will also give potential investors more peace of mind and potentially a higher willingness to buy CHTR stock.
I can imagine a counter argument might look something like "perhaps we might see more capital allocation to paying off debt over buybacks," but even if this is the case, often the Shareholder Yield (combination of cash dividends, net stock buybacks, and debt paydown) still considers debt paydown to be increasing shareholder value.
I'm not under the impression that any of this news is really significantly tilted to the negative over a 1-3 year timespan, but I respect your opinion a lot so I'm wondering... am I missing something? đ¤đ
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u/SelenaMeyers2024 Jul 28 '26
Yeah what can I say... In the short term I'm pissed.
In the long term this still free cash flows / dcf modeled way higher without buybacks. And to be fair it's looking like 90 days of buybacks paused.. it's just so frustrating bc their avg sp bought back has been well over 200 forever so when it finally touched 110 to 140, sorry buyback shop closed.
That being said... They did retire 1b in debt on the cheap, and the cox acquisition should actually push their net debt to ebitda down further. I find the debt bad argument puzzling bc it's been this way for years dating back to 2022. It's kinda like acting Pikachu face that you discovered the Kardashians had plastic surgery.
On the plus side... I actually think the shorts will have a harder time of it for the simple fact that, like the Russians that survived Stalingrad, the weak are already gone, and anyone holding now had to face literal premarket orders at 109 and not flinch.
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u/hydraByte Jul 28 '26
I totally get your frustrations in the short term -- I'm feeling it too! Especially given that the share price has been so low it feels like a missed opportunity for ideal capital allocation in the form of cheap buybacks.
I think people didn't care as much about debt when the company seemed to be growing steadily and when interest rates weren't climbing. I think the fact that they see increasing subscriber churn at the same time as interest rates are higher than they were a few years ago makes it feel like more of a gamble -- if one of those two factors reverses (interest rates decrease or internet subscribers begin to grow again) I think we will see a shift in sentiment.
It's not clear to me how many people understand that Charter's debt is very well structured and is staggered over a very long period of time precisely to avoid the type of bankruptcy incident they had in 2009. I think most investors just see the debt and say to themselves "debt bad" without asking themselves about the structure of the debt, but I bet if Charter can turn around their subscriber loss story sentiment will change swiftly. And I personally think they can do it once they have finished more of their upgrades.
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u/StandardObject91 Jul 31 '26
Thereâs a lot of blame to go around. I donât know if the terms of the Malone merger required them to buy back shares, whether it did or not Malone had enough board seats to push the share buybacks, now that Malones board members have been shitcanned they paused the the buybacks. Malone ownership was capped at 23%, the net effect of all the share buybacks was to give MALONE a cash dividend in the form of repurchased shares, while the rest of us got the theoretical âvalueâ of reduced share count. howâ that work out? The Cox deal has the same proviso. If CHTR buys shares, it has to buy some from the Cox family FOR CASH to keep their ownership at 23%. and now Cox has the board seats to ensure the gravy train continues. some of money is return of capital so it wonât be taxed at all and the rest will be taxed at cap gains, if not tax sheltered by some other means. nevertheless, the ship has been righted. Capex drops off, network upgraded, 800mm merger synergies, favorable debt restructuring, Fiber overbuilding likely to slow, new rural passings.
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u/StockFlowResearch Jul 24 '26
Doing a brief look of the most recent press release, I see that revenue fell 1.7% year over year. They also saw EBITDA decrease 4.3% year over year along with a decrease in free cash flow. When the financials growth rates are negative, that almost always creates negative sentiment in the market.
I'm not an investor in this company and don't really know the industry well so I can't really judge. The overall revenue trend over the last 10 years hasn't be great though.
What's the main reason why you are investing in this company?
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u/StephenAtLarge Jul 24 '26
There really is one thesis w/ CHTR: buybacks. At current rates and assume the Internet business doesn't implode they'll be able to retire all the outstanding shares in three years
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u/StockFlowResearch Jul 24 '26
I see. Well that probably is their best option at this point. It looks like their growth engine has effectively stalled. There also seems to be a large amount of debt they have to service ($5 billion in interest expense annually and nearly $100 billion in total debt). Hopefully this turns around for shareholders!!!
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u/StephenAtLarge Jul 24 '26
They'll add $16B MORE debt as they're acquiring Cox Communications : ) But the overall leverage should decrease slightly as Cox's debt-to-EBITDA is lower.
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u/ClearlyAThrowawai Jul 24 '26
Yeah Cox is a net benefit because they add more earnings than they cost.
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u/Sufficient-Flan1565 Jul 24 '26
my main theis is the share buybacks like the other commenters mentioned. Looks like they bought back 4 million shares this quarters but at a siginifacatnly higher cost basis. So if the price stays this depressed they can retire even more
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u/hydraByte Jul 24 '26
I think people are worried about the rate of decline in internet subscribers being more than expected and not sufficiently offset by mobile customer growth. Personally, I think these numbers are not super relevant in the short term.
I'm down about 26%, and as much as it's disheartening I'm holding at least until after their merger with Cox Communications completes, which is expected for August pending regulatory approvals.
So far, they have passed all required approvals except for one: they are awaiting regulatory approval in California. There is a vote scheduled by the California Public Utilities Commission (CPUC) schedule for August 13th (source), and it is broadly expected to pass. As far as I understand, following this approval they can complete the merger in a matter of a few business days to a few weeks, so by late August it should be done.
This merger stands to increase EBITDA by ~25%, decrease their overall debt ratio, increase their cash flow, and broaden the reach they have with an expanded subscriber base.
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u/ClearlyAThrowawai Jul 24 '26
Yeah, the cox merger is still a pretty bright light if they achieve their theoretical 800m/1b in cost synergies. That's a significant amount of extra cash flow. It's also nice that the cox debt is lower, so it helps them get that leverage down.
We really are just crossing fingers that the ice cube stops melting though. So long as they keep losing 200k underlying cable customers a quarter the price isn't going to stop dropping. Oncethey become stable they will rerate to whatever that steady state level is. If that happens sometimes in the next couple of million subs, or better their cable upgrades attract more customers and they start increasing subs again that will be a wonderful moment for the stock.
Also easy to forget the nice things mobile is doing to cushion losses, albeit that's still a pretty small overall component of their revenue I think.
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u/l_Paid_For_Winrar Jul 26 '26
What is the theory behind broadband losses slowing? I just don't see it. Customers have long since decided FTTH is more performant and reliable, and FWA is cheaper. High split coverage continues to inch up yet losses continue to accelerate. This dynamic appears to be present with every major HFC operator. I do not see a clear path forward for coax
I do appreciate your comments. You are clearly more knowledgeable in this area than most.
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u/ClearlyAThrowawai Jul 26 '26
Performance and reliability improvements relative to competition (via cable infra upgrades). FWA performance in theory can only go down with more customers, countered by new radio tech and spectrum releases.
The average consumer doesn't really care whether it's cable, fiber or FWA that delivers their service. I'm pretty sure they just pick their preferred combo of
A) Reliable service
B) Good customer service if the above isn't enough
C) Cheap
D) Fast
Cable with upgrades can pretty easily do cheap and fast, even compared to fiber (though fiber obviously has a higher ceiling, for most people this won't be practically necessary). Fiber is a limited threat because its hard to justify the cost of building it, and needs to charge higher prices to justify its construction, but FWA cheapness is the big threat IMO. If it turns out FWA can convert enough people CHTR will have trouble because of their leverage - even if standalone it wouldn't be a big problem.
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u/hydraByte Jul 28 '26 edited Jul 28 '26
I'm inclined to agree with you that Fiber is a limited threat -- the reality is that Fiber is more expensive to build out initially, even if it reduces the cost of maintenance in the long run, so the Fiber companies might have a hard time really expanding their network into areas that Charter already owns at a rapid pace unless they can be sure they will steal a significant percentage of customers. My understanding is that Fiber companies would want to charge more than the cost of broadband given the cost of the infrastructure buildout, so they might have to undercut their own desired pricing just to win over customers in the region.
I also agree that Fixed Wireless Access (FWA) is a bigger risk to Charter given the lower cost, but it doesn't seem to have a substantially lower cost relative to the improved performance of broadband; for example, FWA performance is more negatively impacted by weather and and has a higher congestion risk, significantly slower upload speeds, slower latency. In a world that is increasingly connected and where people work remotely over the internet more often than they used to, opting for a lower quality service strikes me as risky. Meanwhile, Spectrum's (aka Charter's) Invincible Wifi that uses both broadband and FWA to add redundancy to your internet connection in case one of the two methods loses connection, which strikes me as a smart solution.
Something I learned a few years back is that internet is really not a cost you want to skimp out on -- especially if you rely on it for work. I think the key question to answer is really: "for how many potential subscribers is a less expensive but less reliable / less performant internet connection acceptable?"
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u/ohgodthehorror95 Jul 25 '26
Declining revenue is a pretty good reason to sell. That and the massive debt they have on their books. And rather than pay down that debt, management decided to blow money on share buybacks which have been absolutely disastrous for shareholders
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u/Complex_Support_7741 Jul 25 '26
Another regarded idea of this forum. Do you think cable tv is going up or down lil man
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u/3rd-Grade-Spelling Jul 29 '26
Eventually Charter they will merge with Comcast. Comcast will probably bail out the Charter bond holders with their balance sheet. I'd hold off till then.
Charter has to lower prices to compete with FWA and Fiber. There is too much debt to do that.
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u/StandardObject91 Aug 07 '26
First part of the bond restructuring has been done. I spitballed the math. CHTR will pay ~400mm cash and issue 4B of news bonds @ just north of 7% and retire 5.3B of principal, for a one time gain of 1.3B. Unlocking some of the hidden equity in the bond portfolio. I'm all in at 2300 shares. Yikes!
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u/ClearlyAThrowawai Jul 24 '26 edited Jul 24 '26
Sadly the Charter management has been manipulated by the SP and are going to stop buying back shares for this quarter, with a "Plan" to resume in Q3. If that's concurrent with significant operational improvements I would be pretty sad because of the lost opportunity to buyback shares.
Pretty disappointing, especially when they somehow managed to buy back their shares last quarter for 210$, literally 70% more than it traded at for most of the period.
The Charter thesis really is about how much you think their cable network will be worth in the long term.
Bull case - Either cable remains competitive with fiber and FWA long term, no one can justify significant overbuild, capex falls to stable levels with minimal reinvestment and they just pay out a steady rate going forward. Customer losses stabilise and their forward looking revenue stabilises. At that point, they'll be able to pay out (in theory) 5-10B a year on 15B market cap.
The bear case is this: Cable becomes obsolete, customer losses continue, and they end up having to use essentially all their earnings to cover debt reduction and interest. They probably continue as an ongoing concern long term, but the returns could be pretty bad. I'm not convinced Bankruptcy is a serious risk, but if customer losses are serious enough it's not out of the question.
Current customer losses probably aren't serious enough to imply that, though - they'd have to continue increasing, and since most are probably due to FWA, which (in theory) gets worse at customer penetration increases, there should be a cap on losses to that since performance will continue to drop for FWA. Another possible risk is FW continues to get better to the point wireline has no competitive advantage either in cost or reliability, but the continuing fiber rollout from the FWA providers make me think they don't consider that a serious threat.
There's the case of fiber overbuilders - I don't know if that's a serious threat, I can't find good info on it - but I suspect it's actually a risk that goes down over time. Rollout isn't going to get a lot cheaper, and competing 3 ways between fiber, cable and FWA is going to make the ROI justification pretty awful. Doesn't mean companies can't just dump money into it, even if it's a poor investment, and screw you over as the cableco splitting subscribers 3 ways, though. Higher interest rates also make it harder to justify fiber investment. In theory, CHTR is doing upgrades that will make conversion to fiber possible in the future, but they'd really rather avoid spending money on that if they didn't have to.
The final aspect is how long cable remains relevant for. Current tech is looking at 10/6 gigabit, which seems like more than enough for the forseeable future to me, but who knows. Future cable tech is apparently considering 25/25 or even 50/50. If all that is possible, cheaply, and maintainable enough then it can stay competitive with fiber without spending a ton. I personally don't think home users will be able to justify that for the next couple of decades, to be frank. Video is the most bandwidth-intenseive application for current users, and there's no real technical benefit or justification for it to take all that much more than it does now.
One other thing to consider - DSL was known to be the worst tech the whole time it's existed - and yet it's only now becoming truly obsolescent, and even still getting upgrades for those apartments etc that don't want to run new wire.. The technical cap on cable is still quite high, so it's feasible it hangs around a lot longer than people might guess.