On Friday, Altice USA (ATUS) experienced a significant stock decline Friday, falling over 11%. The stock decline follows a downgrade by Wells Fargo. The firm shifted its stance on Altice to Underweight from Equal Weight and concurrently slashed the price target to $1 from the previous $2 per share.
The downgrade comes amid Wells Fargo’s analysis of the cable industry, which points to persistent challenges within the sector. The firm’s report indicates that the proliferation of fiber builds and the slowing of fixed wireless access (FWA) net additions are contributing to a competitive environment that is particularly unfavorable for high-speed internet service providers like Altice.
Wells Fargo’s outlook is also cautious regarding potential mergers and acquisitions (M&A) involving Altice. In February 2024, speculation arose about a possible takeover of Altice by Charter Communications (CHTR). However, subsequent comments from management of both companies have cast doubt on the likelihood of such a transaction, with analysts suggesting that the market’s expectations for a deal may be overly optimistic.
In a detailed assessment, analysts distinguished between Altice’s Optimum East and Optimum West divisions, noting the attractiveness of the East division due to its significant fiber passings. Conversely, the West division’s negligible fiber-to-the-home (FTTH) presence and its contribution to subscriber losses and EBITDA pressures raise concerns. The analysis suggests that potential buyers might only be interested in the East division, but even then, the valuation poses risks.
Analysts have also adjusted their valuation approach for Altice, applying a 7.5x enterprise value to EBITDA (EV/EBITDA) multiple for Optimum East and a 5.5x multiple for Optimum West, reflecting the division’s rural challenges. This results in a blended 6.8x EV/EBITDA, which still represents a premium compared to peers. The new $1 price target is based on these revised estimates and supports the firm’s Underweight rating. Analysts acknowledge that there are scenarios that could prove their analysis wrong, such as Altice exploring asset-backed financing or an unexpected acceleration in customer growth, but maintain their position based on current trends.
