The Street's Warmed to Charter, But for How Long?

Cable World, June 30, 2003

Byline: K. C. NEEL

Things may finally be looking up for Charter Communications.

Last week Smith Barney Citigroup analyst Niraj Gupta raised his price target for the company to $4 from $2 citing an improved outlook for the MSO. Stifel Nicolas analyst Ted Henderson is even more bullish. He recently increased his 12-to-18-month target to $6 from $4. And earlier this month UBS Securities analyst Aryeh Bourkoff upped his rating on the MSO to a Neutral 2 from Reduce 2. While admitting the company isn't out of the woods completely, Bourkoff said he no longer believes Charter is in imminent danger of going bankrupt.

Hey, you take what you can get.

The past year couldn't have been much worse for the MSO. Throngs of executives were either fired or just plain left; regulators have been all over Charter's financial reporting methods; and let's not even get into the stock price.

But then Charter chairman Paul Allen agreed to loan the company $300 million; lenders approved a rejiggering of the corporate structure; assets were shed after months on the selling block; and the brain drain appears to have slowed now that most of the old management team has been replaced with new, albeit expensive, talent.

All these events have helped buoy the company's value and given analysts a reason to chat up the stock to investors. The shares, which traded as low as 78 cents in March, closed Friday at $3.48.

"This is a company that has [its] head down, restructuring divisions, restructuring operations under [COO] Maggie [Bellville]," Henderson noted. "Charter is clearly focused on operations and customer service."

Indeed, Charter filled the last of its vacant divisional SVP positions last week, tapping Eric Brown to oversee the Western division. Brown, who'd been president of Time Warner Cable's Minnesota division, will now be responsible for systems that count 1.1 million Charter customers in California, Nevada, Oregon, Washington and Idaho.

Although many field-level jobs remain open - for example, only two of the five GM slots in the Los Angeles area are now occupied and two insiders familiar with Charter's operations told Cable World they expect more defections throughout the company in the coming months - analysts say Charter can now concentrate on operating its properties rather than spend all its time and energy finding people to manage them.

Repeated calls to Charter for comment were not returned last week.

Pesky issues remain, including the company's long-term debt and repayment schedule as well as the resolution of separate grand jury and Securities and Exchange Commission investigations into Charter's accounting practices. However, analysts aren't as gun-shy about the company as they were just a few months ago.

Even an investigation by Charter's board of a recent transaction between Allen and Comcast Corp. isn't curbing analysts' cautious, yet growing optimism. In its proxy filed last week with the SEC, Charter said a special committee was formed to look into Allen's acquisition of Comcast's interest in a joint venture it had with a Charter subsidiary. Somewhat cryptically, Charter said an "issue has arisen" regarding the documentation of the transaction.

Henderson remains unperturbed.

The issue "is not serious is my view," said the analyst. Especially since Allen submitted to binding arbitration to resolve it. With Mavis Scanlon.

THE NEXT QUESTION:

* Does Charter's new executive team, whose members have run much smaller companies or divisions, have the wherewithal to take on their greatly increased responsibilities?