Rising Competitor Pressure And Debt Hurdles Will Diminish Margins

Key Takeaways

• Intensifying competition and persistent cord-cutting are expected to erode revenue growth, margins, and customer base stability.
  
• High debt levels and underinvestment restrict Altice's ability to upgrade infrastructure, limiting competitiveness and future growth opportunities.
  
• Expanded fiber and mobile offerings, operational efficiency gains, and innovative financing are supporting improved profit margins, financial flexibility, and potential long-term revenue growth.

Catalysts

Provides broadband communications and video services under the Optimum brand in the United States, Canada, Puerto Rico, and the Virgin Islands.

• Rapid deployment of next-generation fiber and 5G broadband by competitors is expected to continue intensifying, undermining Altice USA's ability to stabilize broadband subscriber growth and compressing Average Revenue Per User, which will negatively impact long-term revenue and operating margins.
  
• Persistently high levels of cord-cutting and migration to streaming platforms mean traditional video revenues and associated ARPU will keep declining, causing sustained pressure on both top-line growth and gross margin even if losses are temporarily moderated.
  
• High leverage and significant debt maturities over the next several years, combined with rising interest expenses and a weighted average cost of debt well above industry peers, will increasingly erode net margins and restrict reinvestment capacity necessary for competitive infrastructure upgrades.
  
• Chronic underinvestment in network infrastructure relative to larger rivals leaves Altice at risk of losing market share, as inferior service quality leads to heightened churn, limits premium pricing potential, and further dampens revenue and customer lifetime value.
  
• Long-term demographic trends such as slowing household formation and population growth in Altice's core markets will shrink the addressable customer base, structurally capping future broadband and pay-TV subscription growth and putting pressure on earnings and free cash flow.

Altice USA Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Altice USA compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Altice USA's revenue will decrease by 4.8% annually over the next 3 years.
• The bearish analysts are not forecasting that Altice USA will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Altice USA's profit margin will increase from -3.1% to the average US Media industry of 10.1% in 3 years.
• If Altice USA's profit margin were to converge on the industry average, you could expect earnings to reach $765.8 million (and earnings per share of $1.56) by about September 2028, up from $-269.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 0.9x on those 2028 earnings, up from -4.2x today. This future PE is lower than the current PE for the US Media industry at 21.4x.
• Analysts expect the number of shares outstanding to grow by 1.52% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.32%, as per the Simply Wall St company report.

Altice USA Future Earnings Per Share Growth

Risks

• Continued expansion and penetration of fiber and mobile offerings, along with increased adoption of value-added services such as premium support and whole-home Wi-Fi, could drive higher average revenue per user and support long-term revenue and earnings growth.
  
• Operational efficiency programs, including workforce optimization, integration of AI across key business functions, and improved customer service, are leading to lower operating expenses and improving gross and EBITDA margins, which could strengthen profit margins over time.
  
• Stabilizing subscriber trends, with reductions in both broadband and video subscriber net losses and evidence of growth in previously underperforming markets, suggest that revenue trajectory may improve if these trends persist.
  
• Innovative capital structure actions, such as the new asset-backed loan facility and the ability to raise additional similar debt, have provided Altice with greater financial flexibility and lower borrowing costs relative to past high-yield issuances, which could reduce interest expense and support net earnings.
  
• Strategic focus on differentiated go-to-market strategies, improvements in marketing efficiency, and the pursuit of new B2B and hyperscaler contracts, have the potential to open new revenue streams and enhance long-term top-line and EBITDA growth.

Valuation

• The assumed bearish price target for Altice USA is $1.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Altice USA's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $5.5, and the most bearish reporting a price target of just $1.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $7.6 billion, earnings will come to $765.8 million, and it would be trading on a PE ratio of 0.9x, assuming you use a discount rate of 12.3%.
• Given the current share price of $2.4, the bearish analyst price target of $1.0 is 140.0% lower.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.