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Altice's Comprehensive Portfolio Shows Promise, Risks Remain

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On Jun 5, 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 has been rolling out enhanced data and services for its business customers through its unit, Altice Business. Formed by merging its Lightpath, Optimum and Suddenlink business brands under a single umbrella, Altice Business offers the best-in-class data, voice, video and managed services to about 2 million customers. Altice Business has also standardized its product portfolio, 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 its continued investment in technology and innovation for customers in the United States.

The company remains 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.

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 a strategic plan to strengthen its 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 for itself. This was achieved through the acquisitions of Cablevision way back 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 now 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 aid advertisers to screen their messages to target pool of audience, thereby reducing operating costs.

However, Altice has underperformed the industry with an average loss of 39.1% in the past year against a gain of 1.9% 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 is likely to 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.

In addition, Altice’s programming costs increased 2.5% year over year in first-quarter 2018 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 Motorola Solutions, Inc. (MSI - Free Report) , Ubiquiti Networks, Inc. (UBNT - Free Report) and AudioCodes Ltd. , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Motorola has a long-term earnings growth expectation of 8%. It surpassed estimates in each of the trailing four quarters with an average positive earnings surprise of 12.1%.

Ubiquiti Networks has a long-term earnings growth expectation of 18.6%. It topped estimates thrice in the trailing four quarters with an average positive earnings surprise of 8.9%.

AudioCodes has topped estimates thrice in the trailing four quarters with an average positive earnings surprise of 16.2%.

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