Charter's stock gets another downgrade with weak numbers that are 'difficult to explain'

By Emily Bary

Charter's management cites competitive pressures in internet market, but a JPMorgan analyst has some questions

Another analyst is cutting the cord on Charter Communications Inc. shares in light of pressures in the company's broadband business.

Charter (CHTR) surprised Wall Street with the magnitude of fourth-quarter broadband subscriber declines Friday, a dynamic that has analysts increasingly concerned about competition in the market for internet service - but also befuddled about the root cause of Charter's weak numbers.

"Management attributed the slowdown to increased [fixed-wireless access] availability as well as heightened promotional activity from both FWA and fiber, which weighed on gross additions," JPMorgan's Sebastiano Petti wrote in a note to clients Monday. "However, competition from FWA and fiber has been building for some time, which makes it difficult to explain the relative underperformance" in the fourth quarter.

He downgraded Charter shares to neutral from overweight in his latest note, while cutting his price target to $370 from $445.

Charter shares were down fractionally in premarket trading Monday after suffering a 16.5% decline in Friday's session to log their worst one-day percentage drop on record.

See also: Why Spectrum parent Charter's stock just had the worst day in its history

Wireless companies have been pushing their own home-internet offerings, but while Verizon Communications Inc. (VZ) deployed additional C-Band capacity recently, the company's FWA net addition numbers were soft, according to Petti. Meanwhile, AT&T Inc. (T) expanded access to its Internet Air service in the fourth quarter, but Petti said that service has more of a footprint overlap with Comcast Corp. (CMCSA) than with Charter.

He now expects the company to log 100,000 total broadband net losses for 2024, whereas he previously expected 150,000 net additions.

"CEO [Chris] Winfrey expects Charter to 'return to a more normalized internet growth over-time,' but we expect [broadband] losses to continue in 2025," Petti wrote.

He also worries about potential challenges around the Affordable Connectivity Program (ACP), a government initiative that helps some households pay for internet service but that is expected to see its funding depleted come April.

"It is unclear what/if any changes will occur to the program should it receive additional funding," Petti wrote. While his base case assumes the ACP continues, he thinks "this overhang will weigh on shares until a resolution becomes clearer."

Petti joins Wells Fargo's Steven Cahall, who moved to the sidelines on Charter shares late Friday.

Charter's stock has lost about half its value over the past two years, as the S&P 500 SPX has advanced 10%. Shares of rival Comcast are down 9% over the same span.

-Emily Bary

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02-05-24 0857ET

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