On Friday, UBS issued a new rating for Altice USA (NYSE:ATUS), downgrading the stock from Buy to Neutral and slashing the price target to $2 from the previous $4. The firm's revised outlook is based on several factors that are expected to impact the company's growth and financial stability.
The downgrade is attributed to continued pressures from fixed wireless access (FWA), the Affordable Connectivity Program (ACP), and an accelerated expansion of competitive fiber networks. These factors are believed to hinder Altice USA's return to growth, as they contribute to declining EBITDA and keep leverage high.
The firm's analysis suggests a worsening trend in EBITDA, with a year-over-year decline of 6%, compared to the 1-3% seen in recent quarters. High leverage, measured at 7.2x as of the second quarter, is also a concern for the company's financial health.
Additionally, the challenging environment is limiting Altice USA's ability to invest in its fiber rollout while maintaining positive free cash flow. UBS has adjusted its expectations for the company's revenue and EBITDA, forecasting declines of 2.9% and 4.1% respectively in 2024, with further decreases in the following year.
In light of these factors, UBS sees a more balanced risk-reward profile for Altice USA's shares, with diminished prospects for upside potential. The firm's outlook reflects a cautious stance on the company's near-term financial performance and market position.
"In other recent news, Altice USA reported mixed results for the first quarter of 2024. The company's total revenue declined by 1.9%, amounting to around $2.3 billion.
However, growth was observed in key areas such as Residential Average Revenue Per User (ARPU) and segments like Business Services and News and Advertising. The company also added 45,000 fiber passings in the first quarter, with a target of 3 million by the end of the year.
In terms of financial performance, Altice USA has been actively managing its debt maturity profile, clearing near-term maturities until 2027. The company's capital expenditure for the first quarter was $336 million, a decrease of 42% year-over-year, with a full-year expectation of $1.6 to $1.7 billion.
On the analyst front, UBS downgraded Altice USA from Buy to Neutral, while Goldman Sachs (NYSE:GS) rated the company's stock as Sell. These ratings reflect the challenges faced by Altice USA, including competitive pressures from fiber and fixed wireless services, high financial leverage, and an environment of increasing interest rates.
Despite these challenges, Altice USA continues to focus on network expansion and customer satisfaction, as seen in its low churn rates and improving Net Promoter Scores."
InvestingPro Insights
Altice USA's (NYSE:ATUS) financial landscape is under scrutiny with UBS's recent downgrade, and real-time data from InvestingPro provides additional context to the firm's concerns. The company's market cap stands at approximately $864.73 million, reflecting the scale of the business amid market challenges. Despite a challenging environment, Altice USA is trading at a forward P/E ratio of 22.03, suggesting that investors may be expecting future earnings growth, aligning with an InvestingPro Tip that net income is expected to grow this year. Analysts have also shown some optimism, as evidenced by two of them revising their earnings estimates upwards for the upcoming period.
However, the company's financial stability is a point of caution, with short term obligations exceeding liquid assets, which may raise concerns about liquidity in the near term. This is particularly relevant considering UBS's note on the company's high leverage and investment limitations. Moreover, while Altice USA does not pay a dividend, which could be seen as a downside for income-seeking investors, it could also indicate that the company is prioritizing financial flexibility over shareholder payouts in these times of strategic transition.
For those interested in a deeper analysis, there are additional InvestingPro Tips available that can provide further insights into Altice USA's financial health and market prospects. These tips are part of the comprehensive analysis offered by InvestingPro, which includes a fair value estimation that currently stands at $2.52, slightly above the analyst target of $2.00, hinting at a potential undervaluation of the company's shares.
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