Rising Wireless Threats Will Pressure Performance But Enable Recovery

Key Takeaways

• Intensifying competition from wireless and satellite providers, along with urban migration, threatens Cable One's subscriber growth, revenue stability, and addressable market size.
  
• Reliance on debt and exposure to policy shifts heighten refinancing and margin risks, limiting flexibility for future investments amid rising industry competition.
  
• Intensifying competition, declining subscribers, shrinking high-margin video revenue, rising costs, and greater financial caution heighten risks to growth, profitability, and shareholder returns.

Catalysts

Provides data, video, and voice services in the United States.

• Despite the long-term rise in demand for high-speed broadband and Cable One’s strategic push into underserved and rural markets with new offerings like FlexConnect and Lift, the company’s core markets are increasingly vulnerable to competition from emerging wireless and satellite providers such as Starlink, which threatens both subscriber growth and long-term revenue stability.
  
• While Cable One is actively investing in network upgrades and customer experience platforms to boost retention and ARPU—evidenced by the launch of AI-driven churn propensity models and new product bundles—these improvements may be offset by shrinking rural populations and urban migration, which could constrain the company’s addressable customer base and dampen future top-line growth.
  
• Although the company is prioritizing high-margin broadband over legacy video and voice products to shore up profitability, Cable One faces persistent risks from aggressive fiber deployments by telecom operators and new entrants that could erode pricing power and put downward pressure on margins and ARPU growth.
  
• Even as Cable One suspends its dividend to allocate more cash toward debt reduction and organic growth, heavy reliance on debt-financed past acquisitions leaves the company exposed to continued refinancing risk and higher interest costs, which could pressure net margins and limit flexibility for future network investments.
  
• While the industry is benefitting from government incentives targeting rural broadband expansion—a potential tailwind for Cable One—policy shifts favoring open-access networks or subsidies for alternative providers may ultimately increase competition in Cable One’s key operating regions, threatening the company’s ability to maintain customer growth, revenue, and net earnings over the long-term.

Cable One Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Cable One compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Cable One's revenue will decrease by 4.2% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -1.3% today to 23.6% in 3 years time.
• The bearish analysts expect earnings to reach $322.6 million (and earnings per share of $49.98) by about July 2028, up from $-20.3 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 3.0x on those 2028 earnings, up from -33.3x today. This future PE is lower than the current PE for the US Media industry at 17.8x.
• Analysts expect the number of shares outstanding to grow by 0.15% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.6%, as per the Simply Wall St company report.

Cable One Future Earnings Per Share Growth

Risks

• Increased competition from wireless and fiber overbuilders, as indicated by half of Cable One’s footprint now being overbuilt with fiber and a broadband offering from mobile operators present in nearly all markets, is likely to pressure subscriber growth and could reduce both revenue and average revenue per user over time.
  
• A year-over-year decline in residential broadband subscribers and a 4.5 percent drop in residential data revenues highlight that despite new product rollouts, Cable One is struggling to offset customer losses and pricing pressure, which may impact revenue stability going forward.
  
• The broader secular trend away from traditional video, with residential video revenues falling 15.8 percent year-over-year, further erodes high-margin revenue streams and emphasizes the need to depend solely on broadband for future earnings growth, intensifying execution risk.
  
• Rising selling, general, and administrative expenses as a percentage of revenue, now at 25.1 percent compared to 22.4 percent a year earlier, combined with increasing capital expenditures, suggests margin pressure could persist and hinder improvements in net earnings.
  
• The suspension of Cable One’s dividend to prioritize debt reduction signals increased financial caution amid a $3.6 billion debt load and a net leverage ratio just above four times, exposing the company to potential refinancing risk, higher interest expenses, and diminished shareholder returns if free cash flow falters.

Valuation

• The assumed bearish price target for Cable One is $137.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Cable One'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 $444.0, and the most bearish reporting a price target of just $137.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $1.4 billion, earnings will come to $322.6 million, and it would be trading on a PE ratio of 3.0x, assuming you use a discount rate of 11.6%.
• Given the current share price of $119.72, the bearish analyst price target of $137.0 is 12.6% higher.
• 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.