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Bear of the Day: Charter Communications (CHTR)

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Charter Communications (CHTR - Free Report) , a Zacks Rank #5 (Strong Sell), operates as a broadband connectivity and cable operator serving residential and commercial customers in the United States. The parent company of cable provider Spectrum, Charter offers subscription-based internet, video, and mobile and voice services.

Charter also sells video and online advertising to local, regional, and national customers, as well as fiber-delivered communications and managed information technology solutions to large enterprise customers.

The company’s two-way telecommunications network passes through roughly 55 million households and businesses across the country. Charter estimates that about 500 million devices are connected wirelessly to its network.

Despite the seemingly strong credentials, Charter operates in an extremely crowded market. As we’ll see, future earnings estimates have been plunging lately, providing a grim backdrop for the company.

The Zacks Rundown

Charter Communications has been severely underperforming the market over the past year. The downtrend has continued in 2024 as CHTR stock hits a series of 52-week lows. Shares represent a compelling short or hedge opportunity, even as the major indices eclipse former all-time highs.

CHTR is part of the Zacks Cable Television industry group, which currently ranks in the bottom 9% out of approximately 250 industries. Because this industry is ranked in the bottom half of all Zacks Ranked Industries, we expect it to underperform the market over the next 3 to 6 months. This industry has widely underperformed the market so far in 2024:

Zacks Investment Research
Image Source: Zacks Investment Research

While individual stocks have the ability to outperform even when included in weak industry groups, their industry association serves as a headwind for any potential rallies. Charter Communications continues to fight an uphill battle and the stock is confirming this notion, lagging the general market by a wide margin.

Recent Earnings and Deteriorating Forecasts

The media company has missed the earnings mark in five of the past seven quarters. Charter has delivered a trailing four-quarter average earnings miss of 2.39%. Consistently falling short of earnings estimates is a recipe for underperformance.

Analysts covering CHTR decreased their earnings estimates recently. Looking at the current quarter, Q2 estimates have been slashed by 9.42% in the past 60 days. The Zacks Consensus Estimate sits at $7.98/share, reflecting a 0.87% drop from the year-ago period. Revenues are also projected to slightly decline during the quarter to $13.66 billion.

Zacks Investment Research
Image Source: Zacks Investment Research

The multi-channel video market is a saturated one, which significantly lowers growth potential for cable TV operators like Charter. Its three primary competitors include AT&T, Frontier, and Verizon, which offer triple-play packages consisting of multi-channel video, internet, and voice services.

Charter Communications consistently suffers video-subscriber attrition, primarily due to cord-cutting and stiff competition from streamers like Netflix, HBO, Amazon Prime, and YouTube. Despite recent news of a distribution agreement with Paramount Global, Charter will likely remain at a key disadvantage. The company’s leveraged balance sheet is also a concern.

Technical Outlook

Charter’s stock has been steadily falling since late last year and has now established a well-defined downtrend. Notice how both the 50-day (blue line) and 200-day (red line) moving averages are sloping down. Shares have declined about 30% this year alone.

Image Source: StockCharts

CHTR stock has also experienced the dreaded death cross, whereby its 50-day moving average crosses below its 200-day moving average. Charter Communications would have to make a serious move to the upside and show increasing earnings estimate revisions to warrant taking any long positions in the stock. Shares remain in negative territory this year while the general market has eclipsed its former highs.  

Final Thoughts

A deteriorating fundamental and technical backdrop show that we’re not likely to watch this stock hit new highs anytime soon. The fact that CHTR is included in one of the worst-performing industry groups provides yet another headwind to a long list of concerns.

A history of earnings misses and falling future earnings estimates will likely serve as a ceiling to any potential rallies, nurturing the stock’s downtrend. Potential investors may want to give this stock the cold shoulder, or perhaps include it as part of a short or hedge strategy. Bulls will want to steer clear of CHTR until the situation shows major signs of improvement.

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