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Altice Poised for Solid Growth With Core Focus, Risks Remain

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On Apr 9, we issued an updated research report on Altice USA, Inc. (ATUS - Free Report) , one of the largest broadband communications and video services providers in the United States.

Altice is on track with its five-year plan to build a FTTH (fiber to the home) network and deploy its new home communications hub. The company believes the FTTH network will be more resilient with reduced maintenance requirements, fewer service outages and lower power usage, which is likely to lead to further cost efficiencies. This network will allow Altice to satisfy demand for increasing speeds and support evolving technologies, such as the expected transition of mobile networks to 5G and enable it to capitalize on associated revenue-growth opportunities.

At the same time, the company has been rolling out enhanced data and services for its business customers. Altice Business, which was formed by clubbing its Lightpath, Optimum and Suddenlink business brands under a single umbrella, offers the best-in-class data, voice, video and managed services to about 2 million customers. As part of this effort, Altice Business has standardized its product portfolio footprint-wide, providing customers with access to services that meet their needs, regardless of size or region, and creating more value and choice. Additionally, the company is building a next-generation fiber network capable of delivering broadband speeds of 10 Gbps, reflecting Altice’s continued investment in technology and innovation for its customers in the United States.

Altice also augmented its market position as a pioneer in the advertising business with the launch of a4 — an advanced advertising tool — to provide audience-based, multiscreen advertising solutions for its clients. With this, the company has successfully implemented its strategic plan to strengthen footprint in digital advertising through multiple acquisitions and investments.    

From being the first MVPD (multichannel video programming distributor) partner to offer addressable advertising solutions in the New York DMA, Altice has evolved as a leading player in this segment and has subsequently created a niche market for itself. This was achieved through the acquisitions of Cablevision in 2015, followed by Audience Partners, a leading provider of authenticated IP addressability technology, and Placemedia, a premier provider of programmatic ad solutions for OTT and on-demand television.

With the successful integration of these businesses with Cablevision’s advertising and data business, Altice has brought to the fore unique skill sets for advertisers to identify the target audience across screens and local and national TV. They can then create an effective media plan, execute the buy and measure cross-screen reach, frequency and attribution to measure the efficacy of the program.

Leveraging the superior reach of a4, advertisers can reportedly extend their content to more than 90 million households, 85% of broadband subscribers and 1 billion devices in the United States. This would significantly benefit advertisers to screen their advertising messages to target pool of audience, thereby reducing operating costs.

However, Altice has underperformed the industry with an average loss of 18.7% in the last three months compared with a decline of 10.2% for the latter. The company operates in a highly competitive industry against a variety of broadband, pay television and telephony providers and delivery systems, including broadband communications companies, wireless data and telephony providers, video signals, video content and broadcast television signals available to residential and business customers. Moreover, consumers’ selection of an alternate source of service due to economic constraints, technological advances or preference can curb demand for the company’s services. The company’s ability to increase the number of subscribers of its services is highly dependent on penetration rates.

Moreover, Altice’s programming costs increased 4.7% year over year in fourth-quarter 2017 primarily due to a rise in contractual programming rates, partially offset by the decrease in video customers. We expect programming costs per customer to increase going forward.

Nevertheless, we remain impressed with the inherent growth potential of this Zacks Rank #3 (Hold) stock. Some better-ranked stocks in the industry are Arista Networks, Inc. (ANET - Free Report) , Viavi Solutions Inc. (VIAV - Free Report) and Westell Technologies, Inc. , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Arista Networks has a long-term earnings growth expectation of 23%. It topped estimates in each of the trailing four quarters with an average positive earnings surprise of 25.3%.

Viavi Solutions has a long-term earnings growth expectation of 20%. It topped estimates in each of the trailing four quarters with an average positive earnings surprise of 41.1%.

Westell Technologies has topped estimates thrice in the trailing four quarters with an average positive earnings surprise of 225%.

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