Wireless Surge Will Undermine Wired Offerings But Efficiency May Recover

Key Takeaways

• Intensifying competition from wireless, fiber, and satellite services is shrinking Cable One's traditional broadband market, raising risks of subscriber losses and revenue declines.
  
• Rising costs, high debt, and regulatory pressures are straining cash flow and limiting the company's capacity to invest for growth or support shareholder returns.
  
• Strategic innovation, digitization, and diversified growth initiatives could offset subscriber losses and residential headwinds, supporting stable profitability, operational efficiency, and financial resilience.

Catalysts

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

• The accelerating shift of consumers toward wireless and mobile connectivity, combined with the rapid expansion of fixed wireless access and low-earth orbit satellite services, is shrinking the long-term addressable market for Cable One's traditional wired broadband offerings, heightening future subscriber losses and placing pressure on revenue.
  
• Cable One's overlap with fiber-to-the-home competitors has climbed to over 53% of its service area, while cellphone internet competition is now nearly ubiquitous, leading to intensifying pricing battles, higher churn, slowing net adds, and a significant risk of further revenue and market share erosion.
  
• Rising capital expenditures are required to sustain network quality and competitive parity in an environment of overbuilding and technology disruption, putting additional strain on free cash flow while the company's ability to meaningfully grow revenue remains limited, as acknowledged by expectations for flat or declining broadband revenue in 2025.
  
• Cost pressures from regulatory scrutiny over rural coverage, competitive promotional tactics, and customer retention programs will erode operating leverage and net margins, especially as price-sensitive customers churn off promotional rates and new product rollouts struggle to offset attrition.
  
• Continued high debt levels alongside elevated interest costs and the need for significant future outlays to retire maturing obligations will constrain Cable One's financial flexibility, limiting its capacity to reinvest in growth or support shareholder returns, which will negatively impact long-term earnings potential.

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 3.9% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -32.2% today to 10.4% in 3 years time.
• The bearish analysts expect earnings to reach $141.7 million (and earnings per share of $24.79) by about August 2028, up from $-496.4 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 6.0x on those 2028 earnings, up from -1.5x today. This future PE is lower than the current PE for the US Media industry at 20.7x.
• Analysts expect the number of shares outstanding to grow by 0.18% 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.

Cable One Future Earnings Per Share Growth

Risks

• Steady gains in ARPU driven by pricing adjustments, premium tier adoption, value-added services, and effective rollout of programs like AutoPayPlus indicate the company could offset subscriber losses and stabilize or grow profitability and revenue over the long term.
  
• Completion of the unified billing platform and associated digitization is expected to deliver several million dollars in annual cost savings, provide operational leverage, and enhance flexibility for product launches and pricing, potentially improving net margins and supporting earnings growth over time.
  
• The company's ongoing strategic focus on innovation, including customer-centric offerings such as Tech Assist, bundled services like mobile pilots, and targeted segmentation with products like Lift Internet and FlexConnect, positions it to tap into new customer segments and improve retention, which could stabilize or grow the subscriber base and drive long-term revenue resilience.
  
• Disciplined deleveraging, strong free cash flow generation, substantial liquidity, and proactive capital management (including the potential for share buybacks) provide financial flexibility and could enable continued investment in growth initiatives while mitigating balance sheet risk, supporting future earnings and returns to shareholders.
  
• Persistent expansion in business fiber and carrier data revenues, robust new contract wins, and potential for accretive M&A or further monetization of equity investments signal that diversified growth avenues may counteract headwinds in the residential segment, providing a base for long-term revenue and EBITDA strength.

Valuation

• The assumed bearish price target for Cable One is $120.0, 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 $421.0, and the most bearish reporting a price target of just $120.0.
  
• 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 $141.7 million, and it would be trading on a PE ratio of 6.0x, assuming you use a discount rate of 12.3%.
  
• Given the current share price of $132.94, the bearish analyst price target of $120.0 is 10.8% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• 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.