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Charter Communications Stock Down; Deutsche Sees Sharper Rivalry

Charter Communications and the rest of the cable industry are facing 'a more competitive environment,' Deutsche Bank says.
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Charter Communications  (CHTR) - Get Free Report stock on Tuesday was downgraded to hold from buy by Deutsche Bank analysts, who see the cable TV giant facing a more competitive market.

Shares of the Stamford, Conn., company on Tuesday were down 0.7% to $685.85 after hours. The stock closed down 0.7% in the regular session..

Analyst Bryan Kraft also slashed his price target to $725 from $825.

Kraft said in a research note that cable stocks over the past few years have enjoyed a favorable environment.

Cable has benefitted from strong broadband subscriber growth, a more relaxed competitive environment, wider profit margins from product-mix shifts and pricing power, and declining capital intensity as network investment needs remained relatively stable, the analyst said.

"This period of favorable conditions for the cable industry is now transitioning to a more competitive environment, driven by new fiber-to-the-home builds by incumbent [telecom companies] combined with expansion in fixed wireless competition," he said.

The analyst added that cable will continue to be a great business, but it is "more likely to be a less great business going forward than today, rather than a more great business."

"This is a structural change in the competitive environment whereby consumers will have greater choice across a larger proportion of the US," he said. 

"It's like when a new gas station opens across the street from an existing gas station; the incumbent station no longer sells as much gas."

Kraft also downgraded Altice USA  (ATUS) - Get Free Report to hold from buy and cut his price target to $22 from $40. The analyst affirmed his buy rating on Comcast  (CMCSA) - Get Free Report but reduced his price target to $64 from $68.

"We believe that management's revised business plan makes sense and should return Altice to a healthier and more sustainable growth rate." Kraft said. "However, we think it will take time to show results and the plan is not without execution risk."

This is the third downgrade for Charter in less than a week. 

On Monday, Raymond James analyst Frank Louthan downgraded the company to market perform from outperform without a price target. 

On Friday, Wells Fargo analyst Steven Cahall downgraded the cable TV giant to underweight from equal weight, lowering its price target to $665 from $848.

Cahall focused on the slowdown of cable subscriber growth as cable customers are cutting the cord, shifting to streaming video services instead.

“We’re now taking a more bearish stance on the cable sector’s outlook and by default CHTR’s as the industry standard-bearer,” he said.

Cahall also lowered his price target on Altice USA to $21 from $34 while keeping an equal weight rating on the shares.

While Cahall said he is getting more negative on the cable sector, unlike peers, Altice USA has growth challenges, but they're well-known, and it could prove the "canary in the coal mine" for cable peers, the analyst said in a research note.

Shares of Altice recently fell 2.3% to $17.71 while Comcast was off 0.9% at $51.75.