Investors may be tempted to abandon ship as Charter Communications’ Spectrum customers face another weekend without access to sporting events due to an ongoing dispute with Walt Disney. However, according to Benchmark analyst Matthew Harrigan, considering an exit might not be the best move.
Harrigan, who has reiterated his Buy rating on Charter and a $575 price target, believes that the current stock price has already factored in the uncertainty surrounding the dispute. Charter (ticker: CHTR) stock has already dropped over 4% since Spectrum users lost access to ESPN, ABC, Disney+, and other Disney-owned networks.
This dispute arises from the clash between a traditional cable TV bundle and a streaming-dominated industry. Charter currently pays around $2.2 billion annually to Disney for programming costs, excluding advertising. The company desires the flexibility to offer slimmer cable bundles and also wants its customers to be able to access Disney’s ad-supported streaming services at no additional expense.
However, given that Disney CEO Bob Iger is determined to prioritize the profitability of the company’s streaming business, Disney is refusing Charter’s demands. This standoff is detrimental to both companies, as reflected in the decline of Charter’s stock by 4% and Disney’s stock by 3.7% over the same period.
In conclusion, while the situation may seem dire for Charter Communications, investors should carefully consider the bigger picture before making any hasty decisions.
High Stakes for Disney: $2.2 Billion at Risk
Disney, the media and entertainment giant, is facing high stakes as it risks losing out on a $2.2 billion annual payment, in addition to advertising revenue. Despite this, Charter, a major player in the industry, remains optimistic.
According to Harrigan, an analyst at Benchmark, Charter’s stock is expected to fare well. With a price target of $575 per share, which represents a 38% upside to Thursday’s price, he values Charter’s video business at $110 per share. For the current installed base, he values it at $100 per share.
In the event that Charter succumbs to Disney’s aggressive demands for ESPN pricing, there may be a slight setback. Harrigan predicts a $10 decrease in the price target. However, the impact would be minimal, with Charter shifting its focus towards broadband, mobile, and business services. In this scenario, the fair value price target would only decline to $565.
From the analyst’s perspective, it would be beneficial for both companies to resolve their dispute. By allowing the inclusion of skinny bundles without sports and incorporating ad-supported streaming services into the overall bundle, they could satisfy consumers’ needs. Not only would this prevent frustration over missing popular sporting events, such as the start of the NFL season or the U.S. Open finals, but it would also prioritize the interests of customers.
In conclusion, the outcome of this dispute remains uncertain. However, we can hope that both Disney and Charter will prioritize the satisfaction of their consumers and find a mutually beneficial resolution.
