Wells Fargo Initiates on Cable Highlighting Upcoming Industry Concerns CMCSA, CABO, CHTR, ATUS
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Wells Fargo analyst, Steven Cahall, initiated coverage on the Cable industry noting the utility like, historic stability during risk off as broadband is a premium asset class. However, he does see clouds on the horizon for Broadband which he expects to become peakish in the coming years as 2020's broadband sub growth of 4.5% to ~106mm subscribers leaves limited penetration upside. This accounts for ~76% of homes, but it's more like 92% of homes with annual incomes >$25k. The video side of the business is a source of revenue pressure as well but this is not a new risk. Mobile & 5G is an opportunity as companies offer wireless, to existing broadband customers to reduce churn. The asset-light approach is likely to remain the norm and the analyst would only worry if Cable starts to deploy major capital at spectrum auctions.
Regarding individual companies, the analyst stated "Our Underweight rating on Comcast (NASDAQ: CMCSA) is likely to be controversial and reflects our view that the stock cannot reach a fair SOTP given diverging capital dynamics between Cable & Communications vs NBCU/Sky. Our favorite long is Cable ONE (NYSE: CABO), as it has the best passings/net adds/ARPU/least video exposure. We're also bullish on Charter Communications (NASDAQ: CHTR) as a large cap opportunity with margin expansion. We're on the sidelines with Altice USA (NYSE: ATUS) til growth improves."
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