Charter's Mobile Push: Margin Booster or Debt Trigger?

Yahoo

2 days ago

Charter Communications (CHTR, Financial) starts the year 2025 with a bang, as mobile growth is going through the roof, cash flow is broadening, and the company made a daring step of acquiring Cox Communications. While cable companies are usually written off, Charter is beginning to see success in its shift towards broadband, mobile, and streaming bundle packages. The trade tensions mainly do not affect it, as its business is U.S.-centric, so only a small risk exists in maintenance costs. Sure, a worse economy might accelerate cord-cutting, yet Charter is growing margins, has an ambitious plan, and generates plenty of cash. This may be an underdog in the industry, trading at a deep discount to its peers even after its earnings grow strongly. Throw in some recent insider purchases and an increasing level of interest among large institutional investors-and you could have a stock that is much more attractive than the market is apparently assuming.
Warning! GuruFocus has detected 7 Warning Signs with CHTR.
Charter Communications is among the main broadband and cable suppliers in the U.S. under the brand Spectrum, established in 1993 and headquartered in Stamford, Connecticut. It provides high-speed internet (up to 1 Gbps), mobile, TV, and voice services to millions of homes and businesses across 41 states. Spectrum Mobile is networked with Verizon Communications (VZ, Financial), so it has good coverage across the country, and Advanced WiFi enhances in-home connectivity. Charter also serves bigger companies and governmental entities under the brand Spectrum Enterprise and provides customized connectivity solutions.
In addition to connectivity, the company provides advertising through Spectrum Reach and operates local news and sports networks. The distinguishing factor of Charter is that it has emphasized competitive pricing, good service, and customer support. This approach will help create customer loyalty and satisfaction. Charter is also spending big on rural broadband growth, aiming to provide high-speed internet to the underprivileged regions, actually making a difference there as it increases its footprint to almost 57 million premises.
Charter Communications started strong in 2025, demonstrating resilience and strategic focus amid the continued challenges in the industry. In the first quarter, the company recorded revenue of $13.7 billion, which represents a marginal 0.4% year-over-year growth. The real surprise, however, was the strength of Charter's mobile business, which added 514,000 new lines and saw mobile service revenue increase by an eye-popping 33.5%. The latter was also supported by the expansion of connectivity to more difficult-to-reach places with a new satellite-based service launched in partnership with Skylo.
On the Internet side, the revenue increased by 1.8% to $5.93 billion, despite the company losing 60,000 subscribers. Part of those losses were related to the California wildfires, and Charter also highlighted that it is focused on network upgrades. It is also deploying symmetrical, multi-gigabit Internet in new markets and is still promoting its advanced WiFi services as a competitive advantage.
Video losses were still there but the bleeding has been slowed- 181,000 customers disconnected service, versus more than 400,000 a year ago. Charter is attempting to reconsider video, giving customers bundle streaming apps, such as Disney+, Max, and ESPN+, at no additional charge in an attempt to provide further value to its declining base.
Profitability ratios were improving strongly. Adjusted EBITDA increased by 4.8% to $5.8 billion and net income grew by 10% to $1.2 billion. Free cash flow took off to $1.6 billion, a fourfold jump from the prior year, as a result of reduced capex and increased cash operations. Capex declined by 14% to $2.4 billion, with Charter still clamping down on expenditure after having gone on a rural expansion spree.
CEO Chris Winfrey singled out the long-term strategy of Charter to provide a better service and a better value as a factor in the continued progress of the company.
Charter Communications revealed in May 2025 it is purchasing Cox Communications in a deal valued at $34.5 billion, for both debt and equity. It is not merely a matter of becoming larger, although this will provide it with an additional 6.5 million customers and give Charter a grand total of almost 38 million subscribers. It is a calculated power move to redefine the cable arena and to make Charter more competitive in a very fierce marketplace.
The merger makes Charter the biggest cable operator in the U.S., as traditional pay-TV faces attack by streamers, fixed wireless, and fiber providers. But there's more than just scale here. The company projects approximately $500 million of yearly cost synergies, which might cover the loss of legacy video subscribers and make capital available to broadband and mobile growth.
For investors, this deal indicates that Charter is ready to think big in order to remain relevant and potentially stronger. It is a huge wager on consolidation, efficiency, and survival in the long-term in a changing world of media and connectivity.
Looking ahead, Wall Street expects Charter to steadily increase its bottom line over the next several years, which is a positive indicator. EPS will supposedly increase by 2030, by a compound annual growth rate (CAGR) of about 11%, accelerating from $37.72 in 2025 to $63.07. Such growth in earnings, combined with a reducing forward PE ratio, from 10.78 in 2025, down to only 6.45 in 2030, indicates that the stock may be undervalued with respect to its long-term earnings power.
Source: Consensus EPS Estimate (Seeking Alpha)
The growth of revenues is more on a modest side, but it is also moving in the right direction. Charter is expected to increase its top line by 2030 to more than 60.6 billion as compared to 55.24 billion in 2025. That represents an aggregate gain of close to 10% and it is probable that improving margins contributed more to the EPS upside. With Charter combining Cox and embracing its mobile and broadband capabilities, this earnings trend provides a positive context to long-term shareholders.
Source: Consensus Revenue Estimate (Seeking Alpha)
That growth in earnings trajectory takes us to valuation, and this is where Charter becomes even more attractive for investors.
Charter Communications trades at a significant discount to its peers in the industry on a number of key valuation metrics, which could be a potential opportunity for value-focused investors. Its forward P/E is at 10.78, which is over 20% lower than the sector median of 13.57. The discount is even greater on a GAAP basis, where Charter trades at a forward P/E of 10.75, which is 43% lower than the sector average. That implies that the market might be underestimating the earning potential of Charter.
Its EV/EBITDA (FWD) is already at 6.81, or more than 16% cheaper than peers, with EV/EBIT (FWD) also discounted by over 26%. They are not isolated numbers; they are indicative of the general doubt about traditional cable, despite Charter pushing hard in mobile and streaming and now with its Cox merger.
Interestingly, its PEG ratio (forward non-GAAP) is only 0.57, meaning that investors are paying peanuts for the growth of Charter. Should Charter keep performing well, then this valuation gap can reduce meaningfully.
Now let's make a peer comparison. Cable One (CABO, Financial) is one of the suitable peers to Charter, which while much smaller in size, is similar to Charter in terms of its market focus (it targets rural and suburban markets) and its model (it is a broadband-oriented company as well). Cable One appears to be a screaming value play at first sight with a forward P/E of only 4.47 and EV/EBITDA of 5.15, both are significantly below industry averages and more modest than the multiples of Charter. However, there is a reason why CABO has a low revenue and EBITDA multiples. The company is not growing, the momentum is lackluster, and profitability indicators such as the returns on equity and assets are red flags. More than that, going to the GF Value Score, and the chart presented, we have a warning. The chart of the GF Value indicates that the stock has plunged almost 93% of its 2021 high price, trading well below its fair value of $529.5. Although that implies a potential upside, GuruFocus identifies it as a potential value trap, where a stock looks cheap, but still keeps underperforming or sliding. Further price depreciation means low hopes of recovery.
Charter is a bit more expensive than CABO but it is still undervalued compared to sector averages, and even better, has much healthier fundamentals. It is growing due to the Cox deal, its mobile business, good free cash flow, and a solid GF Score. Therefore I think, Charter is a smarter long-term play based on its strategic deployment and financial prowess than CABO's bargain-bin risk.
Next is T-Mobile (TMUS, Financial). I think it's another appropriate comparison to Charter not only due to the fact that they both operate in the connectivity industry but also because their stocks swung in divergent directions after they released their earnings reports in Q1 2025. This discrepancy in market response points out one of the crucial market dynamics, which is valuation.
T-Mobile is valued at a huge premium to Charter on almost all main metrics. Its forward P/E is 22.14, or over twice that of Charter, and its forward GAAP P/E is a 100%+ premium at 22.10. Based on enterprise value, T-Mobile has an EV/EBITDA (FWD) multiple of a whopping 11.28 versus 6.81 for Charter and an EV/EBIT (FWD) multiple of 19.17 against 14.09 in the case of Charter.
Even on growth-adjusted measures, T-Mobile seems more expensive with its forward PEG ratio at 1.42. It is this contrast that reminds us of the amount of upside potential that may be inherent in Charter- should and when sentiment ever begins to reflect fundamentals.
Charter stock has had a tremendous year, rising almost 36% over the past year and easily beating the rest of the communications industry. This is an indication that the market is beginning to appreciate Charter in terms of its margin strength, mobile momentum, and strategic clarity. But despite this rally, the upside potential could be significant.
I think the stock should be given a higher multiple considering the company has strengthening fundamentals, valuation multiples that are at the low end of the sector, and earnings CAGR of approximately 11% through 2030. Using a reasonable forward P/E multiple of 10.5 times my 12-month price target for Charter is $467 based on the estimated EPS of $44.45 in 2026. That would be an increase of about 21% at the present share price. This multiple is still below the historical average of Charter but is more indicative of its strengthening fundamentals, earnings trend, and strengthening investor sentiment.
And now, let us quickly take a look at where analysts project the stock to be in the next 12 months. The current 12-month price target of analysts is at $441.80, implying a modest upside of 14.35%. The bullish target goes as high as $700, suggesting that there are those who think that the rerating story at Charter has just begun. At the lower end, the estimate is $273, but that seems too punitive considering the cash generation ability and the scale as well as the transformation that Charter is undergoing.
Should the company keep scaling and synergies of cost that are expected to come through Cox materialize, the market might end up rewarding Charter with an even higher multiple, rendering my target conservative.
The picture portrayed by insider activity at Charter Communications (NASDAQ:CHTR) is an interesting, albeit subtle one. Although insider selling has been prevailing in the last three years, with 362K shares sold as compared to 35K shares bought, it is not necessarily a red flag. A lot of these sales could be regular diversification or compensation-motivated actions as opposed to a lack of confidence.
With that said, not everything indicates pessimism. The positive thing that catches the eye is the February 2024 purchase by the CEO, Christopher Winfrey, who purchased more than 5,000 shares at approximately $295. That trade is now up a solid 30-35% or so, with the stock near $400, an encouraging indication of confidence at the top. Even the Executive Chairman Thomas Rutledge, who is sometimes a seller, has made substantial purchases as recently as August 2023.
As such, although insider selling is notable, the fact that there were buys, especially by the leadership- indicates that there is still optimism in the long-term direction of the business.
On the way to guru feeling, it has become significantly more optimistic over the past few months. Big-name investors such as Ray Dalio (Trades, Portfolio) (Trades, Portfolio) and First Eagle Investment (Trades, Portfolio) (Trades, Portfolio) added to their positions in March of 2025 alone, with Dalio adding to his position by more than 250% and First Eagle Investment (Trades, Portfolio) (Trades, Portfolio) adding to theirs by 121%. Even John Hussman (Trades, Portfolio) (Trades, Portfolio) started a new purchase. Such purchases occur in the price range of $335 -$385, indicating that gurus have a long-term view regardless of the broader sentiment which is mixed.
Admittedly, a few famous Jeremy Grantham (Trades, Portfolio) (Trades, Portfolio) and Wallace Weitz (Trades, Portfolio) (Trades, Portfolio) names cut their positions. Yet the size of the new buying interest was a vote of confidence in the Charter fundamentals and turnaround story. This type of rotation is something to note by investors who monitor the institutional action.
Though Charter has a solid long-term structure, there are some threats to consider.
The greatest tailwind is increasing competition, specifically, of over-the-top (OTT) video services and fixed wireless access. The streaming video giants are cannibalizing further into Charter Video base, and Verizon and AT&T (T, Financial) fixed wireless is quickly becoming a broadband threat. As the fixed wireless market is projected to expand by almost 20% a year, the monopoly that Charter used to have on home internet is threatened.
Moreover, as Charter focuses on the shift to streaming bundles, the unexpectedly sharp economic downturn may encourage even more subscribers to cancel cable or reduce services. That would squeeze ARPU (average revenue per user) in both video and broadband.
Debt leverage and regulatory risk: Among the more urgent problems that Charter faces is the high debt level. The recent Cox joint venture transaction is being funded by the company on a leverage-neutral basis at a 6.4x EBITDA multiple in order to prevent further aggravation of its already high debt position. The aggregate pro forma leverage should be approximately 3.9x EBITDA, and the management aims at the 3.5-4.0 times range over the next two to three years. It is important to note that the leverage of Cox itself is only 2.2 times, which somewhat balances the entire picture.
Charter is also doing its best to lessen its capital intensity. Capex (capital expenditure) is expected to fall from $12 billion in 2025 to less than $8 billion by 2028, which can free up about $25 per share in free cash flow. Such initiatives may assist in making its balance sheet better in the long run. Nevertheless, Charter remains in a highly regulated business and any changes in the broadband pricing regulations, net neutrality enforcement or local franchise responsibilities would exert further financial strain or reduce pricing elasticity.
The narrative around Charter is changing, and it is going from a legacy cable company into a mobile-driven, broadband-centric juggernaut with significant growth potential. Yes, it has risks such as its high debt, tough competition, and persisting video erosion. But the company is not sitting back. It is slashing capex, ramping up mobile aggressively, and simplifying via the Cox merger, all while generating strong free cash flow.
With improving fundamentals, EPS growth of at least double-digits expected through 2030, and a valuation that is well below that of peers, Charter offers an attractive opportunity to long-term investors. This transformation may not be fully reflected in the pricing of the market thus there is potential for rerating. Provided Charter can keep on executing, patient investors may be handsomely rewarded over the years to come.
This article first appeared on GuruFocus.