Charter Communications needs more to compete with phone companies’ products.
Charter Communications (NASDAQ: CHTR, Bullboard) is the most risky telecom or cable investment of any of the stocks traded on a major U.S. exchange. The company is controlled by billionaire Paul Allen, co-founder of Microsoft (NASDAQ: MSFT, Bullboard).
Normally, a cable company trading at an extremely low price-to-sales ratio would be an attractive stock. Other firms in the industry, particularly Comcast (NASDAQ: CMCSA, Bullboard) and Time Warner Cable (NYSE: TWC, Bullboard), are doing well. They have been converting analog customers to digital, which allows for more paid TV channels. They have also been adding VoIP and broadband users. Almost all of their consumer voice business is being taken for phone companies and is highly profitable.
Charter suffers from two nearly fatal problems – low operating income and extraordinarily high debt. In the first quarter of the year, CHTR revenue was up about 10% to $1.564 billion. This was helped by sign-ups of voice and broadband subscribers. Operating income was $205 million. But the company has $465 million in debt service on its $20.6 billion in debt. Charter has almost no cash.
Charter needs more money to compete with TV and fiber broadband products coming on line from phone companies. It cannot put the cash into new products because it has no way to get the money for capital expenditures.
Charter's most likely future is in Chapter 11 or a financing from Allen that would push the value of common shares down to a few pennies. The stock trades at $1.18, down from a 52-week high of $4.93. Good shares for people who like to gamble.
