Trading at premium far above both Comcast and Charter, Cable One’s valuation on Wall Street exceeds even the value wrought by a prospective purchase of the mid-sized cable operator by Altice USA, said MoffettNathanson analyst Craig Moffett, who told investors that he’s downgraded Cable One to “sell.”
Trading at a premium multiple of 11.7x, compared to 7.6x for Comcast and 9.9x for Charter, Cable One’s financial performance has been closely tracked in the cable industry. The Phoenix-based operator has aggressively touted its lean business model, which has deemphasized higher-cost operations like video and voice, while prioritizing higher-margin residential and commercial broadband services.
But Moffett—who has long been a critic of Cable One’s model—thinks earnings before taxes and depreciation, one of the MSO’s key metrics, will slow in growth in 2017.
Notably, the analyst concedes that he wrongly predicted that Altice wouldn’t “overpay” for Cablevision. Following the European conglomerate’s $17.7 billion purchase of the New York cable company in 2015, Moffett conceded that the call was one of the worst he’s ever made.
He also concedes that Altice is making moves for more acquisitions, and Cable One is the last remaining obvious target.
“But Cable One’s share price has now reached such stratospheric levels that a rather fulsome acquisition premium would already appear to be baked into the stock,” Moffett said in his investor note. “We believe risks are now sharply skewed to the downside.”
Thomas Might, who just stepped down as CEO of Cable One to become chairman of the board, told investors recently that the MSO’s pay-TV subscriber base has been more than halved since it began migrating to its broadband-first strategy in 2012.
Moffett added, “To be fair, Cable One’s video-lite strategy is less capital intensive than that of its peers, arguably warranting a premium multiple. But their rapid losses in video subscribers would eliminate many potential synergies in M&A.”
Moffett’s downgrade follows a similar decree by Zacks Investment Research, which also downgraded Cable One to “sell” in November.