Goldman Sachs took a negative view of three major players in the broadband/wireless communication sector, sending shares of Charter Communications (NASDAQ:CHTR), Altice USA (ATUS), and Lumen Technologies (LUMN) into negative turf ahead of Monday’s regular open. Only Frontier Communications (FYBR) has moved higher as the bank initiated coverage of the company a Buy rating and $29 price target attributed to Frontier’s (FYBR) competitive position among wireline peers and its ability to successfully pivot to a broadband provider from its “legacy heritage.”
The others, however, will face significant competitive pressures from fixed wireless and fiber that will likely remain “intense” for longer than the market currently expects. For Charter (CHTR) Goldman anticipates a series of additional negative catalysts that will continue to pressure the stock. Goldman started Charter (CHTR) with a Sell rating and set its price target for at $250, 17% below Friday’s closing price.
Lumen Technologies (LUMN) has restructured its debt stack and stabilized EBITDA through cost-cutting, but the company will continue to struggle unless it is able to show “more significant progress in revenue stabilization to establish a clearer path to long-term EBITDA growth,” Goldman said, initiating the stock with a Sell. In its latest quarterly report, adjusted EBITDA dropped 22% to $977M year-over-year, contributing to a larger than expected loss of $0.04 compared to a profit of $0.10 in the same quarter a year ago. Seeking Alpha authors are also skeptical of Lumen’s (LUMN) turnaround plan. On the Pulse sees Lumen (LUMN) as “not investible” due to its “unsustainable debt-to-equity” ratio and falling sales. Sensor Unlimited dismisses the cheap valuation as a positive given the company’s unlikely ability to earn a profit for years.
Altice (ATUS), the smallest of the four, is also facing the same competitive headwinds as Charter (CHTR), but with the added pressure from high financial leverage and limited free cash flow. This will leave Altice (ATUS) struggling in a high interest rate environment with little operational flexibility. Goldman also gives Altice (ATUS) a Sell rating, a sentiment shared by SA investor Hydra Research, which thinks Altus’ (ATUS) leverage is high enough to “wipe out the equity.” Altus (ATUS) shares are down 4% in premarket trading.