$CHTR - Perhaps Heavily Undervalued?

$CHTR - Perhaps Heavily Undervalued? Hello good friends. I've been looking at $CHTR for a bit, and I think it's a very interesting play. The stock is down about 80% from it's highs, and the reasons for that are reasonable: they're losing subscribers and market share to fiber, wireless, and satellite. However I believe that the sell off has gone too far. The company is now so cheap that the market is pricing in catastrophic failure, which I don't believe will happen. The initial picture when you look at $CHTR sucks honestly. $90 billion in debt, revenue dropping due to subscriber loss, insane capex. But when you look a bit deeper, this company pumps some crazy numbers. P/E: 3.5 FCF: $4.4 billion (last year) FCF Yield: 24% ->>> !!!! insane Ok, but there must be a reason for these numbers right? What's the reason? Honestly, I'm not sure. Let's go through all the bad. 1. Debt - $90 billion With an $18 billion market cap, the debt number seems insane. Although these telecom companies do seem to operate with higher leverage ratios, $CHTR's leverage is higher than its peers. This has both positive and negative side effects. On the positive side it increases shareholder returns (because debt is money that shareholders aren't putting up, but is working for the shareholder nonetheless). On the negative side, the more debt you have the more likely it is that the company death spirals, and the more likely cash must be used to pay back debt in order to maintain an investable leverage profile. For $CHTR however, death spiral and bankruptcy risk is still pretty far in the future. $CHTR still carries investment grade on most of its debt, and the debt cliffs for refinancing aren't coming until \~2030. Management has reiterated plans to deleverage as well, whether that's a good choice, I'm not sure. Of course the debt burden problem will be exacerbated with continued subscriber loss, which I believe is part of the reason that management wants to deleverage. But again, $CHTR is not at any risk of bankruptcy for at least for the next 2 years. I think that the major risk of the debt is that rates remain high through the 2030s and $CHTR has to refinance a large portion of debt at higher rates, leading to further leverage pressure and the increased need to deleverage. https://preview.redd.it/xh2euvl43loh1.png?width=1912&format=png&auto=webp&s=672a0e2e089023e56cd6962f1aadab2b593bc00c 2. Subscriber Loss This is a big one, and I believe it's the primary reason that this company is so hated. The narrative is so easy. SpaceX is extremely hyped right now. What's more cool than satellites in space? Fiber is coming to everywhere. Wireless is cheaper than everything. And this has been showing up. CHTR has been losing subscribers in internet which is their most profitable and highest margin sector. About 170k lost last quarter from their total of \~29 million. But I mean let's compare the products. Wireless - Cheap, internet can be spotty, terrible for gaming / latency / consistent uptime. Basically for people who use internet just for browsing and light / medium streaming Starlink - IDK how expensive it is, but probably has similar problems to wireless I'd imagine. I mean surely sending a signal to space and back is not the most efficient way to transmit data. Mainly for rural people with no other coverage options. Fiber - The best for speed, data transmission, latency. If you want the best internet you get this Cable - similar price to fiber, worse quality product, but actually not that much worse. Don't know if you know this but cable internet providers actually run fiber for much of the data transmission. It's only the last bit to your house that's cable. This actually leads to comparable speeds and performance to Fiber. They call this DOCSIS 4.0 or something (terrible marketing name). The product is quite good, the marketing not so much. "Fiber" just has an aura that cable can't match. And honestly off marketing alone, the majority of people will choose fiber if they have a choice. So basically to fight the subscriber loss, the name of the game is retention. Price competition drives down margins and ARPU which is bad, so $CHTR has been doing things with bundles. They offer mobile lines bundled with internet. And honestly switching internet providers is an annoying experience. If your internet works well enough for you, are you likely to switch? But I think arguing that subscriber loss won't continue is a stupid argument. But I think that this company at the current price is still a bargain EVEN IF subscriber losses continue. If subscriber losses stabilize (which is honestly best case) this company just seems so insanely undervalued. When I initially looked at the company I did a DCF and I estimated a figure for the % YOY subscriber loss to justify the current price. I don't remember exactly what it was but it was pretty damn high. A lot higher than the current rate (although the rate could accelerate, and if it accelerates enough, my thesis breaks down). But I truly don't believe subscriber loss will accelerate. This is a big ass company, providing essentially one service, and literally everyone is working toward the singular goal of keeping as many subscribers as possible. They have plenty of time and resources (see FCF) to try a ton of shit. And if they manage to stop the bleeding (or even grow subscribers), then the multiple should expand and it should be a 2x at least. That's essentially the bad, but there are some other things to talk about too that I would consider neutral or good. 3. The recent acquisition of Cox Some people view this as a bad, some as a good, some whatever. I personally think it's good. The Cox deal was completed as a $34 billion dollar deal. $CHTR assumed Cox's debts which were about $12 billion. The remaining $22 billion was paid out with $4 billion in debt and $18 billion in equity ($CHTR stock). The great thing about this deal was that this deal was penned when $CHTR stock was a lot higher, so the equity portion was calculated with a $CHTR stock price of $353.64. At today's stock price, effectively $CHTR acquired Cox for 63% off. I actually haven't looked that deeply into Cox's financials, and the Cox equity portion does dilute existing $CHTR holders quite a bit, but the merged companies do the same thing and there should be savings (or synergies as they corporate people like to say). The estimated figures are $1 billion in capex and $800 billion in operating synergies. That's quite a lot. In addition to getting the cash flows and income (which was deemed good when $CHTR was at $356), at $133 (today's price) it's even better, I think Cox's leverage profile is also better than $CHTR's so this also helps to deleverage somewhat. I really like the acquisition. And I think it helps my case. 4. Upcoming Capex Cliff This is the most exciting "event" that's coming up. Leadership is guiding Capex to decrease from \~$11.5 billion to \~$8 billion by 2028. This is caused by buildout finishing for the DOCSIS 4.0 I think. But anyway that extra 3.5 billion will directly hit FCF which will pump the FCF yield to an insane like 40%? Nuts. In 2028 they could literally pay a 40% dividend if they wanted to. Although that's unlikely to happen, it's an insane amount of cash. 5. Conclusion. Honestly it's a dying company. But it's dying very slowly, and has the potential to throw off a ton of cash before it dies. I really like it. Also management really likes to buy back stock. Which I think is a great move at the current prices. They could potentially retire half of their shares within the next few years. If you have any objections I'd love to hear it. Always open to changing my mind :)