15 Companies Management Can’t Fix: Charter Communications

There are certain companies that probably cannot be turned around no matter who runs them. They tend to be in industries where macro-economic trends are against them, like the buggy whip business 150 years ago.

Investors are not likely to get much out of these firms, unless and until the trend that is hurting them is reversed

Investors have made a lot of money in Charter Communications (CHTR) over the last year. The stock is up almost 150% to $2.75. But, over five years, the stock is down almost 80% while big cable operator Comcast (CMCSA) is up slightly.

Charter’s recent quarterly earnings give a hint about why management will find making the company a big success improbable at best. According to The Wall Street Journal: the debt-laden cable operator reported a net loss of $396 million, or $1.08 a share, compared with $336 million.The company lost 43,300 net basic cable customers during the quarter but gained 40,500 digital cable users.

While the company’s cable subscribers tread water, Charter did add 106,000 new VoIP customers. But the firm, saddled with over $19 billion in debt is now facing competition from the fiber offerings of the phone companies which will be able to offer their own package of TV, broadband, and telephone service. Charter has been slow in rolling out its own "triple play" offerings because of its debt load. And, the large telecoms can afford significant marketing costs to try to take customers from cable operators like Charter.

Charter has been refinancing debt and move maturity dates further out, which may buy it some time, but its borrowings are still a huge issue.

Morningstar has a "fair value" estimate price of $1.80 on the company. One reason is that Charter’s roll-out of VoIP will cost money and put further pressure on its finances. The research firm is also concerned that: "Insolvency is a realistic scenario for Charter, given the substantial interest expense its massive debt load generates."

A great deal of the company’s stock price increase has been based on its ability to refinance debt and the hope that its VoIP service will continue to do well. But that means that Charter may have to spend money its doesn’t really have.

Charter may be working on its debt, but its operating results show that its progress is only modest.

Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.