Altice (ATUS) Buys Morris Broadband, Spurs North Carolina Foothold

Altice USA, Inc. ATUS recently augmented its footprint in North Carolina with the acquisition of Morris Broadband LLC assets for an enterprise value of $310 million. The transaction, subject to the fulfillment of mandatory closing conditions and regulatory approvals, is likely to be funded with available liquidity and is expected to close in the second quarter of 2021.

Serving the communities of Hendersonville, Franklin, Sylva, Nebo and West Jefferson, Morris Broadband is a leading provider of high-speed data, video and voice services. It offers services to the rural and underserved areas of the region with heavy infrastructure development driven by government grants and has created a name for itself. The transaction will enable Morris Broadband to leverage enhanced scale, operating efficiencies and investment support from Altice to better reach its customers.

On the other hand, the buyout is a strategic fit for Altice as it aims to extend its reach with greater market penetration. Post the completion of the acquisition, North Carolina will become the sixth largest state for the company (in terms of number of residential customers) out of 21 states in which it operates.

Notably, Altice has been accelerating the pace of its network rollouts. It is witnessing strong momentum in customer penetration, typically reaching about 40% within a year of the rollout in new-build areas. The company witnessed robust demand for its broadband service in fourth-quarter 2020 with a 47% year-over-year increase in average data usage per customer to approximately 468 GB per month (roughly 591 GB per month for broadband-only customers). The company has accelerated the deployment of 1-gig speeds, which are currently available in more than 92% of its geographical footprint.

Altice is on track with its five-year plan to build a fiber-to-the-home (FTTH) network and deploy its home communications hub. It believes that the FTTH network will be more resilient with reduced maintenance requirements and lower power usage. Altice is building a fiber network to deliver broadband speeds of up to 10 Gbps, which underscores its investment in technology. At the end of fourth-quarter 2020, the company covered nearly 1 million homes with FTTH technology. It remains positive on the future of its FTTH deployment initiatives and is confident of delivering CAPEX and OPEX efficiencies following the completion of its FTTH build.

Altice expects the macroeconomic impact from the COVID-19 pandemic to affect its operations, particularly in News and Advertising, and SMB businesses. Although this lowers revenues and EBITDA visibility, the company remains confident of its ability to deliver revenue and adjusted EBITDA growth in 2021 while maintaining leverage and share repurchase targets. The company currently anticipates capital expenditures in 2021 to be within $1.3 billion to $1.4 billion with a year-end leverage target of less than 5.3x.

The stock has gained 30.5% over the past year compared with the industry’s rise of 50.9%.

Buoyed by the opportune acquisitions, we remain impressed with the inherent growth potential of this Zacks Rank #3 (Hold) stock. Some better-ranked stocks in the industry are Knowles Corporation KN and Plantronics, Inc. PLT, sporting a Zacks Rank #1 (Strong Buy), and Corning Incorporated GLW carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Knowles has a long-term earnings growth expectation of 10%. It delivered an earnings surprise of 19.3%, on average, in the trailing four quarters.

Plantronics delivered a trailing four-quarter earnings surprise of 560.4%, on average.

Corning has a long-term earnings growth expectation of 2%. It delivered an earnings surprise of 41.6%, on average, in the trailing four quarters.

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