Altice USA (ATUS) Up 1.6% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Altice USA (ATUS). Shares have added about 1.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Altice USA due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Altice's Q4 Earnings Surpass Estimates, Down Y/Y

Altice reported healthy fourth-quarter 2018 results with improved subscriber trends, solid margins and growth in free cash flow.

Quarterly net income was $213.1 million or 30 cents per share compared with $2,242.5 million or $3.04 per share in the year-ago quarter. The significant decline in earnings, despite top-line improvement, was primarily due to higher income tax benefit in the year-earlier quarter. Adjusted earnings for the quarter were 31 cents per share, which comfortably beat the Zacks Consensus Estimate of 14 cents. For full-year 2018, GAAP earnings decreased to $18.8 million or 3 cents per share from $1,493.2 million or $2.15 per share in 2017, largely due to lower income tax benefit.

Quarter Details

Total revenues increased 4% year over year to $2,454.9 million driven by growth across all business segments. The top line, however, missed the Zacks Consensus Estimate of $2,459 million. For full-year 2018, total revenues improved to $9,566.6 million from $9,306.9 million in 2017.

Residential revenues were $1,939 million, up 2.1% year over year with improving customer trends and net additions in broadband business. Average revenue per user increased 1.9% year over year to $142.44. Business services revenues were $348 million, up 5.3% with both its Enterprise and SMB units continuing to trend well due to improved value proposition with voice and data bundles and reduced churn. Advertising revenues totaled $162 million, up 33.2% owing to higher targeted data and analytics revenues. With in-depth reporting, measurement and analytics services, Athena – the targeted ad planning platform – has been the primary growth driver of a4, the cross-screen targeted advertising business of Altice.

Quarterly operating income improved considerably to $528.7 million from $217.1 million in the year-ago quarter mainly due to decline in depreciation and amortization charges. Adjusted EBITDA was $1,106.1 million compared with $1,035 million a year ago.

Cash Flow & Balance Sheet

Operating free cash flow for the quarter was down 2.1% to $785 million, reflecting increased investment in new fiber-to-the-home. Free cash flow increased 27% year over year in 2018 to $1,355 million. At the end of 2018, the company’s net debt was $21,441 million. Altice repurchased $259 million worth of shares in the quarter under its share repurchase plan and expects to repurchase an additional $1.5 billion worth of shares in 2019.

During the quarter, Altice simplified its organizational structure and operations by combining the Suddenlink (Cequel) and Optimum (Cablevision) businesses under a single credit silo, post the separation from Altice Europe NV. The strategic combination marks a significant milestone in the integration of the Suddenlink and Optimum businesses and aligns the corporate debt capital structure with a common strategy.

Guidance

For full-year 2019, Altice anticipates revenue growth of 2.5-3% year over year. The company also reiterated its plan to expand adjusted EBITDA and cash flow margins over the medium to long term while maintaining the year-end leverage target unchanged at 4.5x to 5.0x net debt / adjusted EBITDA.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions. The consensus estimate has shifted 50% due to these changes.

VGM Scores

At this time, Altice USA has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Altice USA has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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