Tuesday, Loop Capital has adjusted its outlook on Altice USA (NYSE:ATUS)shares, reducing the price target to $2 from $3, while retaining a Hold rating on the shares. The firm's analysis suggests that Altice USA's market capitalization, which is under $1 billion, combined with its substantial debt load of $24.4 billion, renders the stock's current trading pattern akin to that of an option.
The valuation of the company is highly sensitive to changes in the enterprise value to EBITDA (EV/EBITDA) multiple, with a 0.1 shift altering the stock price by $0.73, or 37%.
The firm noted that while there has been media speculation about a potential interest from Charter Communications (NASDAQ:CHTR) in acquiring Altice USA, such an outcome seems improbable. The analyst cites Altice USA's high leverage, Charter's slowing broadband growth, and the prevailing interest rate environment as factors that diminish the likelihood of such a transaction.
Despite these challenges, Altice USA has made strides in improving its broadband product across approximately half of its East Coast footprint. The company is in the initial stages of marketing this enhanced service. Moreover, Altice USA has established a robust Mobile Virtual Network (LON:NETW) Operator (MVNO) partnership with T-Mobile. Nevertheless, the company continues to grapple with legacy reputation issues that impact its market performance.
The revised price target of $2 primarily reflects what Loop Capital considers the "option value" of the stock. The firm's assessment indicates that Altice USA's leverage ratio exceeds the EBITDA multiples of its peers, Comcast Corporation (NASDAQ:CMCSA) and Charter Communications (CHTR), which contributes to the cautious investment stance.
InvestingPro Insights
In light of Loop Capital's revised outlook on Altice USA, current metrics from InvestingPro provide additional context for potential investors. With an adjusted market capitalization of $875.52 million, Altice USA's stock performance has been notably volatile, as reflected in the significant price drop of over 23% in the last month alone. Despite this, the company's net income is expected to grow this year, a positive indicator amidst the challenges. Moreover, Altice USA's P/E ratio stands at 16.54, which adjusts to a more favorable 5.78 when considering the last twelve months as of Q4 2023. This suggests that the stock may be undervalued relative to its earnings.
However, it's important to note that the company's short-term obligations currently exceed its liquid assets, presenting a potential liquidity risk. Additionally, Altice USA does not pay a dividend, which may deter income-focused investors. For those considering the stock, there are over seven additional InvestingPro Tips available, which can be accessed at Investing.com/pro/ATUS. To enhance your investment research, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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