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Analyzing Charter Communications’ Risk Factors
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Analyzing Charter Communications’ Risk Factors

Charter Communications (CHTR) provides broadband and cable communication services. It operates through the Spectrum brand and serves more than 32 million customers in 41 U.S. states.

For Q4 2021, Charter reported a 4.7% year-over-year increase in revenue to $13.2 billion, falling slightly short of the consensus estimate of $13.3 billion. It posted EPS of $8.93, which rose from $6.05 in the same quarter the previous year and beat the consensus estimate of $6.96.

With this in mind, we used TipRanks to take a look at the risk factors for Charter.

Risk Factors

According to the new TipRanks Risk Factors tool, Charter Communications’ main risk categories are Finance and Corporate, Tech and Innovation, and Production, each representing 24% of the total 17 risks identified for the stock. Legal and Regulatory and Ability to Sell are the next two major risk categories at 18% and 6% of the total risks, respectively. Charter has recently updated several of its risk factors to emphasize a number of challenges it faces. 

The company tells investors that there are ongoing efforts to change various federal, state, and local regulations that apply to its business. It cautions that regulatory changes could increase its costs and limit its ability to grow revenue. Additionally, Charter says that it is subject to RDOF program rules and that failure to comply with the rules could expose it to significant penalties. Moreover, defaulting on RDOF program requirements could result in Charter being locked out of future government contracts. 

Video programming remains Charter’s largest operating expense and continues to rise. It blames the rising costs on market consolidation resulting in fewer suppliers. It cautions that rising programming costs will continue to depress its cash flows and video product profit margins.

The Finance and Corporate risk factor’s sector average is 46%, compared to Charter’s 24%. Charter’s shares have declined about 8% year-to-date.

Analysts’ Take

Morgan Stanley analyst Benjamin Swinburne recently reiterated a Hold rating on Charter stock but lowered the price target to $680 from $740. Swinburne’s reduced price target still suggests 14.61% upside potential. The analyst notes that the outlook for Charter’s cable unit remains largely unchanged after the company’s Q4 report. Instead, the issue is with the company’s rural footprint, which Swinburne notes is growing larger than expected, prompting him to cut Charter’s free cash flow and price target estimates.

Consensus among analysts is a Moderate Buy based on 7 Buys, 8 Holds, and 2 Sells. The average Charter Communications price target of $688.27 implies 16% upside potential to current levels.

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