Shares of Charter Communications Inc. and Comcast Corp. edged lower Tuesday after an analyst downgraded both telecommunications stocks, saying that the landscape for cable companies is set to become more challenging.
Truist Securities analyst Greg Miller worries about evolving dynamics in the cable industry, including rising competitive pressures in broadband from wireless companies offering fiber or fixed-wireless-access services.
stunning price point of only ~$25 for existing customers (recently launched) and its fiber homes passed likely to double by 2025, we believe that cable industry has formidable competition in more regions for the first time in over a decade,” Miller wrote.
Comcast shares were off 0.6% in Tuesday afternoon trading, while Charter shares were down 0.9%.
Miller thinks that higher pricing helped drive revenue growth for the cable industry in recent years, but he expects that incumbent players could have trouble seeing a similar trend going forward.
“To the extent the 40 – 50 million new fiber passings combined with 90 million homes covered by the FWA [fixed-wireless access] products of Verizon and T-Mobile
yields expected results at lower price points, we believe the days of cable ARPU increases are behind,” he wrote, referring to average revenue per user.
Miller said that it could be difficult for the industry to see a return to historical growth patterns, and accordingly he worries that consensus expectations for 2023 subscriber growth might be too lofty.
While there may be “minimal near-term financial impact” on Comcast and Charter, Miller expects that valuations could come under pressure due to pricing dynamics and the prospect of share losses.
“With CABO’s largest acquisition to date (Hargray), merger related synergies tracking ahead of expectations and with a footprint less susceptible to the effects of the increased levels of competition, we believe the greatest risk to CABO is valuation compression of its peers — as with WOW,” he wrote.