Comcast, Charter stocks get downgraded on view ‘cable will be increasingly pressured’

“With Verizon’s VZ, +0.90% stunning price point of only ~$25 for existing customers (recently launched) and its fiber homes passed likely to double by 2025, we believe that cable industry has formidable competition in more regions for the first time in over a decade,” Miller wrote.

He lowered his ratings on Charter CHTR, +1.87% and Comcast CMCSA, +1.90% to hold from buy in a noted titled: “Broadband Competition Heating Up — Cable Will Be Increasingly Pressured.”

Comcast shares were off 0.6% in Tuesday afternoon trading, while Charter shares were down 0.9%.

Miller thinks that higher pricing helped drive revenue growth for the cable industry in recent years, but he expects that incumbent players could have trouble seeing a similar trend going forward.

“To the extent the 40 – 50 million new fiber passings combined with 90 million homes covered by the FWA [fixed-wireless access] products of Verizon and T-Mobile TMUS, +0.23% yields expected results at lower price points, we believe the days of cable ARPU increases are behind,” he wrote, referring to average revenue per user.

Miller said that it could be difficult for the industry to see a return to historical growth patterns, and accordingly he worries that consensus expectations for 2023 subscriber growth might be too lofty.

While there may be “minimal near-term financial impact” on Comcast and Charter, Miller expects that valuations could come under pressure due to pricing dynamics and the prospect of share losses.

Miller is less concerned about Cable One Inc. CABO, +0.11% and WideOpenWest Inc. WOW, -1.07%, both of which he continues to rate at buy.

“With CABO’s largest acquisition to date (Hargray), merger related synergies tracking ahead of expectations and with a footprint less susceptible to the effects of the increased levels of competition, we believe the greatest risk to CABO is valuation compression of its peers — as with WOW,” he wrote.