Robust Fiber Expansion Will Shape Future Broadband Landscape

Key Takeaways

• A broadband-centric strategy and fiber expansion are driving higher margins, better subscriber quality, and sustainable revenue growth as consumer demand shifts toward high-speed internet.
  
• Prudent financial management and asset-light investments improve free cash flow, enabling reinvestment in growth and positioning for stronger future earnings.
  
• Acquisition agreement caps share price upside amid ongoing declines in legacy services, high debt, cash flow pressures, and long-term risks from competition and infrastructure demands.

Catalysts

Provides high-speed data, cable television, and digital telephony services to residential and business customers in the United States.

• The ongoing expansion of fiber-to-the-home infrastructure into greenfield and edge-out markets is increasing the company's addressable footprint and demonstrating strong consumer demand for high-speed internet, positioning revenue for future growth and higher incremental margins.
  
• The shift to a broadband-focused model, with a decreasing legacy video subscriber base, continues to reduce costs, support higher ARPU (up 4.9% year-over-year), and improve overall net margins by maximizing investment toward more profitable broadband offerings.
  
• Sustained consumer appetite for higher speed tiers (with 76% of new connects at 500 Mbps or more) in both legacy and expansion markets reflects the rising importance of robust internet connectivity amid rising home and business digitalization-supporting ongoing ARPU growth and revenue stability.
  
• The extension of the revolving credit facility and prudent capital allocation, alongside a more asset-light expansion strategy, positions the company for improved free cash flow and flexibility to reinvest in growth or reduce debt, thereby supporting future earnings strength.
  
• Maintaining strong penetration rates in newly built fiber markets, coupled with commercial momentum in edge-out expansions, is moving the company closer to a net add inflection point, laying the groundwork for positive subscriber growth and revenue gains as secular demand for broadband continues to rise.

WideOpenWest Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming WideOpenWest's revenue will decrease by 5.1% annually over the next 3 years.
• Analysts are not forecasting that WideOpenWest will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate WideOpenWest's profit margin will increase from -10.7% to the average US Media industry of 10.1% in 3 years.
• If WideOpenWest's profit margin were to converge on the industry average, you could expect earnings to reach $52.4 million (and earnings per share of $0.62) by about August 2028, up from $-64.7 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.6x on those 2028 earnings, up from -6.5x today. This future PE is lower than the current PE for the US Media industry at 18.4x.
• Analysts expect the number of shares outstanding to grow by 1.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.01%, as per the Simply Wall St company report.

WideOpenWest Future Earnings Per Share Growth

Risks

• The recent definitive agreement for DigitalBridge Investments and Crestview Partners to acquire all outstanding shares of WideOpenWest at $5.20 per share-approved unanimously by the Board as a strong premium-places a near-term cap on share price appreciation, significantly limiting any upside for existing public shareholders (impacting potential future capital gains).
  
• Declining legacy high-speed data (HSD) subscribers and an overall reduction in total revenue by 9.2% year-over-year, primarily due to sharp falls in video and telephony business, highlight secular headwinds from cord cutting and shifting consumer preferences away from legacy services (risking further revenue declines).
  
• Ongoing high capital expenditure requirements for greenfield fiber builds and Edge-Out expansions resulted in unlevered adjusted free cash flow dropping this quarter, reflecting pressure on liquidity and net margins as expansion spending rises faster than EBITDA growth.
  
• High leverage, with $1.05 billion in debt and a 3.5x leverage ratio, increases vulnerability to rising interest rates and ongoing cash flow constraints, limiting financial flexibility for further investment or weathering industry transitions (pressuring net earnings and free cash flow).
  
• Intensifying competition and the need for continuous costly network upgrades (to counter legacy infrastructure obsolescence and meet rising broadband performance demands) present long-term risks that could depress future margins and subscriber growth-now largely outside current shareholders' control due to pending ownership change.

Valuation

• The analysts have a consensus price target of $4.765 for WideOpenWest based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $517.5 million, earnings will come to $52.4 million, and it would be trading on a PE ratio of 10.6x, assuming you use a discount rate of 11.0%.
  
• Given the current share price of $5.06, the analyst price target of $4.76 is 6.2% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• 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.