Say No To Trading
Public Markets Investor, Opportunistic Buying & Cost-Basis Management
Charter Communications looks like a trade going forward rather than a long-term investment. It behaves like an amplified version of long-dated Treasury bonds, so if interest rates fall over the coming years the shares would benefit, but many long-duration assets offer that without the leverage risk if rates stay here or higher. x.comÂ
Charter is drowning in debt, and that leverage outweighs its cash-flow appeal. @k3ithmccullough puts Charter at a 25% free-cash-flow yield by 2028. The most bullish point is that capex is expected to come down, but on a quick look the heavy debt load makes the stock look very poor. x.comÂ
Charter Communications operates in a structurally declining market and spends capex just to keep EBITDA flat at best. Fintwit's interest in the stock was misguided, and it is not a comparable case to the one @PineTreeFlag raised. x.comÂ
Charter is a very asymmetric bet at 2.35x consensus 2027 EPS, letting it buy back shares massively at a P/E of about 2. A modeled bad case with much bigger, continued subscriber losses still yields about $30 of owner earnings. Charter can offset lost subscribers by raising prices, capturing M&A synergies and paying down debt, with many years of deleveraging before EBITDA would fall 20% and debt covenants would bite. x.com x.com x.comÂ
Charter looks like a value buy at a forward P/E of 3.8, but the risk of further big drops makes it a pass. The stock fell 24% on its earnings reaction, back to its 2016 price. x.comÂ
Charter's stock-based compensation of a little over half a billion dollars a year is a real cost to shareholders that should come out of free cash flow, since it dilutes their ownership. One mitigating point on the debt: John Malone was right to borrow very long term, with over 90% at fixed rates and some bonds running into the 2060s, per a post the author replies to. x.com x.com x.com x.comÂ
Charter Communications is covered in a new, free-to-read note. x.comÂ
US Treasury and aggregate bonds are risky because rates are more likely to go up than down, whatever their current level. In that scenario, bond math works against holders. Oaktree's Howard Marks argues these are among the lowest rates of the last 50 years, but the direction matters more than the level. x.comÂ
High Treasury yields keep US real-estate stocks from being a buy yet, despite a record low against the S&P 500. Each hike pushes the sector lower; the 10-year yield above 5% argues for waiting rather than assuming rotation is inevitable. A turn likely needs falling rates, perhaps a first cut or the 10-year back below 4%. x.com x.com x.com x.com x.com x.com x.com x.com x.com x.comÂ
Charter Communications is now worth owning at prices last seen in 2013, with a margin of safety coming simply from lower capex. That marks a turn from the earlier view that buybacks at excessive prices made the stock unattractive. Comcast is likewise too cheap to pass up, helped by its upcoming split, and Charter's repurchases can resume within days. x.com x.comÂ
Long-dated US Treasuries face pressure because the market will buy US debt only at 5%-plus yields, with no short-term fix in sight. The 10-year yield keeps climbing parabolically as Washington issues enormous debt to fund deficits, investors demand more compensation for inflation and duration risk, the Fed is now raising rates, and Treasuries must compete harder for global capital. The government seems reluctant to act, while rising oil prices add to inflation pressure. x.comÂ
