The Ratings Game: Charter gets its third downgrade in as many trading days as cable concerns continue

Deutsche Bank analyst Bryan Kraft became the third analyst in as many trading days to downgrade shares of Charter Communications Inc. as concerns grow about competitive pressures in the cable industry.

Kraft lowered his ratings on both Charter

and Altice USA Inc.

shares to hold from buy Tuesday, echoing arguments made by several other analysts in recent days about the competitive threat from telecommunications companies that are spending up to grow their fiber footprints.

He expects weaker returns going forward for cable stocks due to the potential for more pricing pressure, steeper marketing expenses, and higher capital spending.

Charter shares are off 0.5% in Tuesday trading while Altice USA shares are down 3.0%.

“This is not a question of whether cable broadband is as good as FTTH [fiber-to-the-home] or better than fixed wireless (that’s a different debate),” Kraft wrote. “This is a structural change in the competitive environment whereby consumers will have greater choice across a larger proportion of the US. It’s like when a new gas station opens across the street from an existing gas station; the incumbent station no longer sells as much gas.”

He lowered his price target on Altice USA shares to $22 from $40 and cut his Charter target to $725 from $825. Kraft also lowered his price target on shares of Comcast Corp.

to $64 from $68, but he kept his buy rating in part because the company has a more varied business makeup, which makes it less exposed to cable pressures.

He upped his target on shares of buy-rated Liberty Broadband Corp.

to $196 from $188 to reflect a discount in the net asset value relative to Charter.

“To be clear, we believe that cable will continue to be a great business, but that cable is more likely to be a less great business going forward than today, rather than a more great business,” he wrote. “As such we see more potential for multiple contraction than multiple expansion, as well as more risk of downward estimate revisions than upward estimate revisions.”

Kraft’s note follows a Raymond James analyst’s downgrades of Comcast and Charter stocks Monday and a Wells Fargo analyst’s downgrades of Charter and Cable One Inc.

shares Friday.

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