1 No-Brainer Cable Stock to Buy

Usually cable stocks should be avoided like the plague. The trend towards cord-cutting has been unrelenting as streaming services like Netflix came to the forefront over the past decade. After all, why pay $80 per month when you can pay $10 for a range of movies on your favorite streaming platform?

But most of the well-known cable companies compete against each other in city environments and have to fend off stark competition. One company, though, stands out for playing in a completely different field altogether, the non-urban customer, and it’s eating up all the business for itself. What company is it and is it worth buying?

Key Points

• Cable One has a unique business model serving non-urban areas which often means it has a monopoly in certain regions.
• Retention rates and churn rates are better than average for the cable industry.
• According to analysts and a cash flows analysis, the company has material upside opportunity at this time.

What Makes This Cable Firm So Different?

At first glance, Cable One may not be all that exciting. It’s an internet provider after all but where it shines is in the customers it serves, those in non-urban areas. The reason that’s such a competitive advantage is Cable One is often the only provider in many areas where it operates, so it’s got an effective monopoly in certain regions.

It’s also a company that makes possible small business growth in the areas it serves, which in turn leads to higher retention and loyalty in those communities. Another perk is that remote workers can stay connected and move to areas that were otherwise out of reach, so it boosts the local economy’s growth, which further cements customer loyalty.

As Cable One’s brand has grown, so too has retention climbed and churn fallen relative to its bigger name rivals. Longer customer lifetimes in turn lead to higher profitability and that’s a key facet of CABO’s financials. For five years straight, the firm has been profitable in every single quarter on an earnings before interest and taxes basis. Even as revenues have slowed over the past year, EBIT has continued to shine.

Is Cable One Stock a Buy?

With a compelling business model, Cable One seems like it’s worth grabbing your interest based on its competitive edge alone but it’s got much more going for it. For starters, it pays a 2.11% dividend yield.

But the more enticing aspects of the business is its valuation. Of the six analysts covering the stock, the consensus view is that Cable One has at least $150 per share of upside to $705 per share. A discounted cash flow forecast analysis is even more bullish and puts fair value at closer to $760 per share.

Another aspect in favor of bulls at this time is the company’s high shareholder yield of 10.6% alongside its 19.4% return on equity, both impressive industry figures.

If there was one drawback it’s that growth is not forecast or expected by analysts anytime soon so the play is primarily a valuation one where the stock is trading at a material discount to intrinsic net worth but unlikely to produce Nvidia-like returns.