Broadband communications company Altice USA, Inc. (ATUS), which is headquartered in Bethpage, N.Y., has accelerated its revenue growth, primarily with the help of advertising. It recently launched its new Optimum Mobile brand as the first step to aligning all its connectivity brands under one Optimum national brand.

The company has reported solid second-quarter earnings. However, it recently witnessed a decline in hedge fund sentiment.

Deutsche Bank analyst Bryan Kraft has downgraded ATUS to Hold from Buy with a price target of $22, down from $40. In addition, the stock has lost 27.9% in price over the past month and 46.1% over the past three months to close yesterday’s trading session at $18.21. Also, it is currently trading 52.4% below its 52-week high of $38.30, which it hit on December 30, 2020. So, the company’s near-term prospects look uncertain.

Here’s what could influence ATUS’ performance in the upcoming months:

High Profitability

In terms of trailing-12-month EBITDA margin, ATUS’ 24.53% is 126.8% higher than the 10.81% industry average. Likewise, its 10.86% trailing-12-month CAPEX/Sales is 189.6% higher than the 3.75% industry average. Furthermore, the stock’s 17.85% trailing-12-month levered FCF margin is 56.2% higher than the 11.43% industry average.

Reasonable Valuation

In terms of forward non-GAAP PEG, ATUS’ 0.24x is 84.1% lower than the 1.49x industry average. Its 2.84x forward P/CF  is 72.2% lower than the 10.21x industry average. Also, the stock’s forward non-GAAP P/E and P/S of 8.87x and 0.83x, respectively, are lower than the 19.87x and 1.78x industry averages.

Unfavorable Market Trend

Share prices of cable companies are declining due to a recent downtrend on concerns over subscriber growth, taking major names to multi-month lows. Deutsche Bank has downgraded ATUS, the fourth downgrade the company has received in less than a month, since it cut its forecast for broadband subscribers, a move that came after a similar warning from Comcast Corporation (CMCSA) in mid-September.

Unfavorable Analyst Estimates

Analysts expect ATUS’ EPS to decrease 10% in the current quarter and 0.5% next year. Also, the company’s revenue is expected to decline 0.2% year-over-year to $2.53 billion for the quarter ending December 31, 2021.

POWR Ratings Don’t Indicate Enough Upside

ATUS has an overall C rating, which equates to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. ATUS has a C grade for Momentum, which is consistent with its 51.9% loss year-to-date and 35.2% decline over the past year.

The stock has a C grade for Stability, consistent with its 1.18 beta. ATUS has an F grade for Sentiment, which is in sync with its unfavorable analyst sentiment.

ATUS is ranked #2 out of 9 stocks in the Entertainment - TV & Internet Providers industry. Click here to access ATUS’ ratings for Growth, Value, and Quality as well.

Bottom Line

ATUS is currently trading below its 50-day and 200-day moving averages of $21.99 and $30.58, respectively, indicating a downtrend. Moreover, it could continue retreating in the near term due to concerns over subscriber growth. Therefore, we think it could be wise to wait for a better entry point in the stock.

How Does Altice USA (ATUS) Stack Up Against its Peers?

While ATUS has an overall POWR Rating of C, one might want to consider investing in Entertainment - TV & Internet Providers stocks with a B (Buy) rating, such as Comcast Corporation CI A (CMCSA).

ATUS shares were trading at $18.55 per share on Friday afternoon, up $0.34 (+1.87%). Year-to-date, ATUS has declined -51.02%, versus a 22.40% rise in the benchmark S&P 500 index during the same period.

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.

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