Long Term Stocks

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Charter Communications (CHTR) - >>> 4 Warren Buffett Stocks to Buy Now

Many of the publicly traded stocks held by Berkshire Hathaway are fairly valued or overvalued today, according to Morningstar’s metrics. Here are some of the stocks among its holdings in the latest quarter that looked undervalued as of Feb. 13, 2024.

Charter Communications CHTR
Citigroup C
Kraft Heinz KHC
Kroger KR

Here’s a little bit about why we like each of these stocks at these prices, along with some key metrics for each. All data is as of Feb.

Charter Communications

Morningstar Rating: 5 stars
Morningstar Economic Moat Rating: Narrow
Morningstar Capital Allocation Rating: Standard
Industry: Telecom Services

Berkshire Hathaway owns about 2.6% of Charter Communications’ stock. The company is the result of a 2016 merger of three cable companies: legacy Charter, Time Warner Cable, and Bright House Networks. We think the company has carved out a narrow economic moat, thanks to its efficient scale and cost advantage. Charter Communications stock currently trades a whopping 47% below our $550 fair value estimate.

Here’s what Morningstar director Mike Hodel had to say about the stock after the company’s fourth-quarter earnings release:

Ugly headline numbers marred Charter’s fourth-quarter results. While we don’t see much reason to change our long-term view of the firm, the next couple of years are shaping up to be more challenging than we had expected. We are trimming our fair value estimate to $550 from $580, but we believe the market has overreacted to current weakness.

Customer metrics were very weak, especially given Charter's emphasis on volumes over price. The firm lost 61,000 net broadband customers during the quarter, far worse than the 105,000 added a year ago and the first loss since the second quarter of 2022. Management didn’t flag any recent changes in the competitive environment. Fixed-wireless customer gains and fixed-line results from AT&T and Verizon were generally consistent with recent performance. Charter also claims that it hasn’t seen an impact on broadband customer losses as Spectrum One bundle discounts expire. We agree with management that small changes in customer wins and losses get undue attention when net customer growth is near zero, but those changes haven’t gone in Charter’s favor recently.

Average revenue per residential broadband customer increased only 2.2% year over year, as Spectrum One bundle discounts are allocated between broadband and wireless revenue. Total revenue per residential customer was roughly flat versus a year ago, with television losses offsetting wireless and broadband gains. Residential revenue was flat year over year and total revenue increased 0.3% on modest business services growth, largely offset by a sharp drop in political ad revenue.

Management provided capital spending expectations through 2027 to shed more light on the firm’s investment plans. Charter expects annual spending in 2024 and 2025 to be above $12 billion, about $1 billion more in total than we had forecast. The firm believes spending will drop sharply in 2027, excluding any additional subsidized project wins, to $8 billion, which we suspect is overly aggressive.

Mike Hodel, Morningstar director

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