It’s time to consider investing in cable stocks, according to Wolfe Research analyst Peter Supino.
Upgrades and Reassessments
Supino recently upgraded his rating on Charter Communications stock (CHTR) from Peer Perform to Outperform. He set a price target of $565, indicating a potential increase of 37% from current levels. Additionally, he revised his bearish stance on Comcast stock (CMCSA), upgrading its rating from Underperform to Peer Perform. Though he didn’t specify a price target for Comcast, the change in rating is significant. Overall, Supino adjusted his rating on the cable sector to Market Weight from Underweight.
Fading Threat of 5G-based Fixed-Wireless Service
Supino believes that the cable providers’ competitive threat from 5G-based fixed-wireless service offered by AT&T and Verizon Communications is diminishing. He predicts that by 2026 or 2027, mobile networks will no longer be adding home internet users.
Positive Signs for Cable Providers
According to Supino, both Comcast and Charter reported improvements in second-quarter net additions (adjusted for seasonality), which suggests that the competition is either stable or improving.
Investors may want to take note of these positive developments in the cable sector.
Broadband Market Analysis
The broadband industry is growing rapidly, but according to industry analyst Tom Supino, there is still a lack of competition in the market. With only 1-3 suitable providers available per location, Supino believes that this limited competition contributes to the industry’s pricing power.
Supino points out that while fixed-wireless availability is limited and fiber offerings from telecom companies are not significantly cheaper than cable, there is an opportunity for cable providers to achieve sustained revenue per user growth. This is particularly true for cable giant Charter, which Supino sees as less vulnerable to competition, creating a potential for future price increases.
In the case of Comcast, Supino notes that the stock is currently undervalued, trading at only seven times the estimated 2024 EBITDA (earnings before interest, taxes, depreciation, and amortization). This valuation is well below historic averages. According to Supino’s calculations, fair value for Comcast stock ranges from $37 to $63, with the midpoint at $50. This suggests a potential upside of 14% from the current stock price.
As of Wednesday, Charter stock is up 1.5% to $417.55, while Comcast stock is down 0.9% to $44.92.
