r/valueinvesting
CHTR thesis: slight cable decline vs. FCF/buyback machine looking for pushback
Bullish thesis on CHTR: undervalued at 3.5x earnings with massive FCF yield; buybacks paused for Cox deal but expected to resume, driving shareholder value.
- Extremely low valuation at ~3.5x earnings with free cash flow yield implying three years of FCF equals current market cap.
- Historical track record as an aggressive buyback machine ($79B+ repurchased), with expectations for resumption post-Cox transaction.
- Debt profile considered manageable due to fixed rates and long maturities, contrary to market fears of fragility.
- Structural decline in the core cable business poses a long-term revenue headwind.
- High absolute debt load of ~$94B creates financial leverage risk despite favorable maturity profiles.
- Regulatory uncertainty surrounding the Cox/Liberty transaction approval (specifically California CPUC) delays catalyst realization.
I have been eyeing CHTR for a while and slowly building a starter position. Sharing a screen shots below
Outstanding shares: https://www.macrotrends.net/stocks/charts/CHTR/charter-communications/shares-outstanding
Today I came across one of the more comprehensive write-ups I’ve seen on Charter Communications ($CHTR) shared by a user here on reddit, and I’m curious what this sub thinks.
Link:
https://sixerinvestment.substack.com/p/charter-communications-chtr-the-wonderful
The basic thesis is that the market is treating Charter like a melting ice cube, but the cash flow / buyback math may be much more interesting than the headline narrative suggests.
The main points:
Charter is trading around 3.5x earnings with a very high free cash flow yield. The article argues that roughly three years of FCF is close to the entire current market cap.
The company has historically been an aggressive buyback machine. Since 2016, Charter has repurchased about $79B+ of stock/units, which is several times the current market cap. The author argues the buyback is being temporarily throttled around the Cox transaction, not permanently abandoned.
The Cox/Liberty transaction is presented as the near-term catalyst. The write-up says most approvals are already done and California CPUC is the remaining key gating item, targeted around summer/August 2026. If/when the deal closes, the author expects buybacks to eventually restart at scale.
The debt is obviously the biggest bear-case issue. Charter has around $94B of debt, but the author argues the maturity profile and fixed-rate nature make it less fragile than the market assumes. The reverse stress test section was one of the more interesting parts: basically asking what level of subscriber losses would actually break the capital structure.
The other interesting part is the short-interest setup. The article claims roughly 18–27% of the float is sold short, with a structurally tight float due to strategic/value holders. If the buyback restarts while short interest is still elevated, the setup could get interesting. I think the short float might be as high as 50+% since we have no way of telling if this is being calculated only on the open float or total float (part of which is locked \~35-50% similar to CAR).
My current read:
The bull case is not “cable is suddenly growing again.” It is more like:
stable-ish broadband cash flow + capex normalization + Cox close + resumed buybacks at a very low multiple = big per-share value creation.
The bear case is also obvious:
broadband losses accelerate, wireless/fiber competition gets worse, debt becomes the story, and buybacks don’t come back fast enough to matter.
I’m long common stock and also own 10 Jan 2028 LEAPS, so I’m biased here. But I’d like to hear the strongest pushback from people who have looked at Charter, Comcast, cable broadband, or the debt side.
Main questions I’m trying to answer:
- Is this genuinely cheap, or is the market correctly pricing a structurally impaired business?
- Is the debt manageable if broadband declines continue at a slow rate?
- How realistic is a meaningful buyback restart after Cox closes?
- Are shorts underestimating the per-share math, or are longs underestimating the terminal decline risk?
If you look at the EV/EBIT multiple it’s sitting at just under 9X not exactly “incredibly cheap” for a company that is shrinking without a long-term runway to return to growth.
In a “shrinking ice cube” scenario that is all or primarily equity you can “buyback” the cheap stock such that the EPS still grows despite shrinking overall earnings. The issue with a debt-heavy “shrinking ice cube” is that as organic earnings are in decline yes you could use cash to buyback the “cheap” equity, but it leaves you with a fundamental problem, your 94B in fixed charges will eventually come due, and as your earnings decline you have less and less ability to repay those fixed charges.
The beauty of debt in a growing company is that as earnings organically grow the repayment of fixed charges becomes smaller and smaller relative to your cash generation power, the downside risk is that the opposite is equally as true, if your earnings are in decline the hurdle of clearing your fixed charges becomes higher and higher due to your shrinking cash generation power
I'd counter that mo trades at 12. In MO case, the revenue is rusting 3 percent each year and fcf is increasing 3 percent..
Chtr fcf is expected to explode next few years due to reduced capex. The immediate counter is dividends, which it pays none vs chtr, you have to trust the buybacks, which at todays price is 25 percent, then rising to 33 percent in 2 years...
More than that, chtr has to explode in the next year due to short squeeze shenanigans.. 36 percent of the float is structurally locked (liberty broadband, insiders).. 26 percent of the float is shorted... 8 days to cover, and 25 percent buybacks... Something has to give...fast
I think the counter is the overall debt load relative to the value of the FCF in the business, MO has 25B in debt against 9B in FCF or about 3X FCF, while CHTR carries 94B in debt and a little under 4B in FCF or 24X FCF even if you assume that capex cuts boost CHTR FCF up to match MO at 9B that’s still a debt load of over 10X FCF.
MO is able to largely offset declining volumes by raising prices and is in a structurally asset light business with little required maintenance capex.
CHTR on the other hand faces stiff competition from multiple angles, satellite in rural areas and fiber in denser more urban areas, their only real way to stem customer loss rates is to keep prices low enough that it is attractive for them to stay because although the quality is lower the lower price still provides value to the customers.
If however they try to raise prices it accelerates their customer loss as people aggressively search for alternatives in fiber and or satellite. However the nature of their business is such that the costs to distribute to a given area are largely fixed costs, the money spent to install the wire maintain the system and the rent that must be paid to the power company for attachment at each pole, if they are attached in a given neighborhood where they serve 30 customers or 300 their cost to serve the area largely stays the same. While this degree of operating leverage can be great when you serve the entire area, once competition comes in and your customer density drops the operating leverage cuts back at you in a bad way.
@Longjumping-Fact-582 FCF is supposed to increase in 2027 and again in 2028 once DOCSIS 4.0 upgrade and Rural build capex runs off. Once Cox deal closes, with the additional $1B or so FCF, total FCF could reach $7B in 2027. As quoted in the article linked above, the subscriber losses have to accelerate to 10% a year for 7 yrs straight in order for this company to have solvency problems. That IMHO is a tail risk. Not the base case.
I come from the utility industry myself, and as such I deal with a lot of new development pipeline from telecom companies wanting attachment on power company poles, and I see 2 attack vectors coming at broadband networks everyday as well as a 3rd more rural focused one that I don’t necessarily see on my day-day but I’m sure it is also a real threat.
1-FTTH there are many different companies currently building out fiber to the home networks, often these are overlashed onto existing telecom networks which reduces the costs for the new buildout but once installed they can carry much more bandwidth. It is a better quality product and this is where the price insensitive customers will go as soon as it is available in a given area, it may be more expensive but it is absolutely better quality
2-5G repeater systems, these are usually installed by mobile companies like Verizon AT&T etc… they use a UWB 5G signal to take data from homes in a given neighborhood and breakdown to fiber on the pole, the bandwidth is lower than a FTTH connection but because it eliminates the need to install drops to each house, a single node can often serve 100+ homes it is a much more cost effective way to build out the fiber network and such completes directly against CHTR for the “cost conscious” customers
The 3rd is satellite, the primary risk here is in rural areas, due to the increased distance at which lines need to run to serve each customer, the more rural you go, the more satellite has a unique form of cost advantage over any wire based carrier whether fiber or cable.
The big danger to CHTR is as I described above, their degree of operating leverage, any subscriber loss will come primarily from profits before it starts to realistically reduce the fixed costs for CHTR to operate the network
Fair bear case, but I think this is exactly why the stock is priced where it is.
Nobody buying CHTR here becouse cable will grow. FTTH is better where available, fixed wireless can take some price-sensitive customers, and satellite can matter in rural areas. That is all known. Can It replace cable and accelrate the decline, that is highly doubtful and there are enough data points present to that including Elon admitting that satallite isnt meant to replace cable in rural areas.
The real question is whether this is an actual cliff or just slow erosion. At this valuation, the market seems to be pricing CHTR like broadband cash flows are going to collapse( 3 time FCF). I don’t see that yet in any of the data.
If subscriber losses stay gradual, CHTR can still generate massive FCF, capex can normalize, and post-Cox buybacks could retire a lot of stock at depressed prices.
yes, competition is real. But competition exists isnt enough. The bear case has to show the decline is fast enough to destroy the FCF before buybacks/deleveraging create value. That’s the part I’m not convinced of yet.
But it’s not really 3X FCF now is it? Saying it’s trading at 3X FCF ignores the elephant in the room of debt holders, Ignoring the debt means you are making the assumption that the business will rollover that debt in perpetuity and continue to operate, but I don’t think that is the case here, cable is an old technology, and it may not die tomorrow but as long as it is shrinking, so too does its ability to hold debt otherwise the fixed charges will be so great that as organic cash flow shrinks it will not be able to make the interest payments
This is a business with a high degree of operating leverage with an equally high degree of financial leverage layered on top, the bear case here isn’t that broadband infrastructure is dead tomorrow, it’s the case that shrinking customer counts in broadband will have an incredibly magnified effect on this company due to the combination of operating and financial leverage,
Let me put it this way, how do you see this scenario playing out? Imagine you just bought the equity in this business you now own a legacy cable company with shrinking customer counts and have $94B of fixed charges on the balance sheet against $3B of FCF now if you slash all growth capex you can probably get to $8-9B in FCF but that number will begin to quickly shrink as you are bleeding subscribers which I might add will likely begin bleeding faster after the offset of your growth capex is cut.
If you tried to aggressively pay down the debt lets be generous and say by slashing growth capex you can get to $9B FCF and then let’s assume your interest expense savings offset your subscriber losses, it would take you over 10 years to entirely deleverage to get to a “stub value” that you could extract some equity value from, even if we assume that the business isn’t destined to die completely but say it must deleverage by 50% that’s 5 years of cash flows to shrink the leverage before you can realistically start to extract any value as an equity holder
I understand it screens at 3X FCF on equity but how do you extract that cash out of the company when there’s $94B in fixed charges ahead of you in the capital stack?
Okay so I asked Claude to model a 3% sub loss (2 times current sub loss) with a 3% EBITDA loss (the network is a fixed-cost asset; the marginal cost of a lost customer is small but lets assume it translates directly) for 7 years. Here is a screenshot - https://imgur.com/a/HyKgvnn
At the end of 7 yrs, the EBITDA will be $18B with a leverage of 3.36 (Investment grade!!) With less than half the share count. FCF per share a whopping $93. Lets assume it still trades at 3x FCF (which I highly doubt), that is $270. More than double the current share price. I will take a double in 7 years hands down. I really hope the stock price stays depressed while they retire the shares. Lower the better. This coiled spring will expand violently at some point forcing the shorts to cover. Please feel free to borrow my shares and sell it short!
At $8B FCF, is it fair to say that CHTR is able to pay down $6 bil debt (saves $300 mil in interest expense a year) and buyback $2 bil worth stock each year? If they do that for the next say 5 years, all while suffering 2% subscriber losses, where does that leave CHTR? Also, when buyback restarts, what happens to the shorts? Plus, New house is not going to sit around and see their 13% equity interest evaporate.
Reminds me of the quote - "Rumors of the Death of US Public Companies Are Greatly Exaggerated"
CHTR is 12 bucks up since I posted this. No changes in my fundamental thesis so far. I continue to hold my DEEP ITM 10 leaps 2028 and stocks. As far as I can think only catalysts remaning. Next would be CPUC approval. They are in negotiations which tell me approval will go through.
There is hardly any arbitrage with the proposed Liberty broadband liquidation if that is what you mean Different-Turnover80
@Longjumping-Fact-582 FCF is supposed to increase in 2027 and again in 2028 once DOCSIS 4.0 upgrade and Rural build capex runs off. Once Cox deal closes, with the additional $1B or so FCF, total FCF could reach $7B in 2027. As quoted in the article linked above, the subscriber losses have to accelerate to 10% a year for 7 yrs straight in order for this company to have solvency problems. That IMHO is a tail risk. Not the base case.