Charter (CHTR)

Cable, internet, and telephone services provider Charter (NASDAQ:CHTR) met Wall Street’s revenue expectations in Q1 CY2025, but sales were flat year on year at $13.74 billion. Its GAAP profit of $8.42 per share was 0.6% above analysts’ consensus estimates.

Company Overview

Operating as Spectrum, Charter (NASDAQ:CHTR) is a leading telecommunications company offering cable television, high-speed internet, and voice services across the United States.

The massive physical footprints of cell phone towers, fiber in the ground, or satellites in space make it challenging for companies in this industry to adjust to shifting consumer habits. Over the last decade-plus, consumers have ‘cut the cord’ to their landlines and traditional cable subscriptions in favor of wireless communications and streaming video. These trends do mean that more households need cell phone plans and high-speed internet. Companies that successfully serve customers can enjoy high retention rates and pricing power since the options for mobile and internet connectivity in any geography are usually limited.

Competitors in the telecommunications and media services industry include Comcast (NASDAQ:CMCSA), DISH Network (NASDAQ:DISH), and AT&T (NYSE:T).

Reviewing a company’s long-term sales performance reveals insights into its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Regrettably, Charter’s sales grew at a sluggish 3.6% compounded annual growth rate over the last five years. This fell short of our benchmark for the consumer discretionary sector and is a rough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or trend. Charter’s recent performance shows its demand has slowed as its revenue was flat over the last two years.

We can dig further into the company’s revenue dynamics by analyzing its number of internet subscribers and video subscribers, which clocked in at 27.98 million and 12.16 million in the latest quarter. Over the last two years, Charter’s internet subscribers averaged 1.2% year-on-year declines while its video subscribers averaged 8.1% year-on-year declines.

This quarter, Charter’s $13.74 billion of revenue was flat year on year and in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to remain flat over the next 12 months. This projection doesn't excite us and suggests its newer products and services will not lead to better top-line performance yet.

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Charter’s operating margin might fluctuated slightly over the last 12 months but has remained more or less the same, averaging 23.7% over the last two years. This profitability was elite for a consumer discretionary business thanks to its efficient cost structure and economies of scale.

In Q1, Charter generated an operating profit margin of 23.6%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Charter’s EPS grew at an astounding 34.1% compounded annual growth rate over the last five years, higher than its 3.6% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

In Q1, Charter reported EPS at $8.42, up from $7.54 in the same quarter last year. This print was close to analysts’ estimates. Over the next 12 months, Wall Street expects Charter’s full-year EPS of $35.83 to grow 6.3%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Charter has shown weak cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 7.9%, subpar for a consumer discretionary business. The divergence from its good operating margin stems from its capital-intensive business model, which requires Charter to make large cash investments in working capital and capital expenditures.

Charter’s free cash flow clocked in at $1.56 billion in Q1, equivalent to a 11.4% margin. This result was good as its margin was 8.8 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, causing temporary swings. Long-term trends are more important.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Charter historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 9.8%, somewhat low compared to the best consumer discretionary companies that consistently pump out 25%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Fortunately, Charter’s ROIC averaged 2.2 percentage point increases over the last few years. This is a good sign, and we hope the company can continue improving.

Charter reported $796 million of cash and $93.77 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $22.84 billion of EBITDA over the last 12 months, we view Charter’s 4.1× net-debt-to-EBITDA ratio as safe. We also see its $5.15 billion of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was encouraging to see Charter beat analysts’ EBITDA and EPS expectations this quarter. There was also a nice year-on-year improvement in operating margin. On the other hand, its number of internet subscribers missed. Zooming out, we think this was a decent quarter featuring some areas of strength but also some blemishes. The stock traded up 3% to $344.99 immediately following the results.

Updated: May 22, 2025 at 10:48 PM EDT

When considering an investment in Charter, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

Charter isn’t a terrible business, but it doesn’t pass our quality test. First off, its revenue growth was weak over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its astounding EPS growth over the last five years shows its profits are trickling down to shareholders, the downside is its number of internet subscribers has disappointed. On top of that, its relatively low ROIC suggests management has struggled to find compelling investment opportunities.

Charter’s P/E ratio based on the next 12 months is 10.6x. This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're fairly confident there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $427.07 on the company (compared to the current share price of $408.17).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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