By Sam Boughedda
A Barclays analyst said in a note on Thursday that it is not surprising to see the underperformance of cable stocks.
The analyst explained that the firm feels cable stocks should be trading like telecom stocks. "It is not surprising that the underperformance of cable stocks vs telecom stocks and the broader markets has continued and at present levels, some names like Comcast (NASDAQ:CMCSA) are arguably trading more like telecom companies rather than cable companies. We believe this is likely to be the new normal but names like Charter (NASDAQ:CHTR) and Altice (NYSE:ATUS) have still not seen valuations reflect this reality despite a steep sell-off this year, when adjusted for leverage," he wrote.
"FCF growth (excluding DTV cash flows this year) has had almost no growth. Over this period, Comcast cable revenue has grown by $22bn or 52% while cable EBITDA has grown by ~$12bn or 71%. Free cash flow over this period has grown by $7.4bn or 113%. Not surprisingly, therefore, cable has traded at a premium to telecom over the last decade," he added.
However, Barclays believes going forward, companies such as Comcast and its cable peers like Charter are "more likely to look like what telecom companies looked like over the last decade in having very little growth if any, especially when it comes to free cash flow."
As a result, Barclays believes valuation frameworks need to be redefined when searching for a floor in cable.