Charter at a Steal: Buy CHTR for Multiple Re-rating and Cash Flow Catch-up

Hook & thesis

Charter Communications is trading at roughly 6x P/E and a sub-0.5x price-to-sales multiple. At $215.30 today, the market is pricing in very little optionality for either multiple expansion or steady free cash flow conversion. That looks excessively pessimistic. With trailing free cash flow of about $4.42B, an enterprise value near $122B, and EV/EBITDA around 5.7x, the setup favors buyers who want exposure to a mature, cash-generative broadband operator at a deep discount.

We are upgrading CHTR to Buy. This is a tactical, tradeable idea with a defined entry at $215.30, a stop loss at $190.00, and a primary target at $320.00 (with a secondary stretch to $395.00). The base case is a multiple re-rating toward ~8x-10x on stable EBITDA and gradual deleveraging; the bull case is faster multiple expansion if churn stabilizes and litigation risk fades.

Business overview - what Charter does and why the market should care

Charter Communications provides broadband, video and voice services under the Spectrum brand. The core profit engine is internet access - Spectrum Internet - supplemented by advertising through Spectrum Reach and B2B services. In a world where data consumption keeps rising and fixed broadband remains a necessity, Charter sits in a strong position as one of the largest nationwide providers.

The market cares because broadband is sticky, increasingly high-margin on incremental sales, and the company produces substantial free cash flow. With a reported free cash flow of $4.418B and return on equity north of 31%, Charter has both the cash generation and the operating leverage many investors want from a telecom infrastructure business.

Key fundamentals and valuation frame

Here are the numbers that matter today:

Two valuation observations stand out. First, the headline P/E of ~6x is exceptionally cheap for a stable consumer broadband operator with high FCF. Even if earnings normalize lower, free cash flow coverage and EV multiples imply material upside. Second, EV/EBITDA near 5.7x implies the market is pricing the business as if growth and margin improvement are off the table.

History and logic support re-rating. Mature cable operators historically trade in the low-to-mid-teens on P/E in benign markets, and EV/EBITDA multiples in the high single-digits to low-teens when growth and churn stabilize. Charter's current multiple therefore implies either a severe fundamental deterioration or overblown risk premia - we think the latter dominates.

Supporting evidence from the numbers

• Free cash flow: $4.418B above provides real distributable cash to pay down debt or pursue buybacks once visibility improves.
• Profitability: Return on equity around 31% indicates the underlying business generates solid returns on invested capital despite heavy leverage.
• Valuation divergences: Price-to-sales of ~0.48x and EV/EBITDA ~5.7x leave room for multiple expansion without requiring material top-line growth.
• Technical backdrop: The stock has momentum indicators that support a move higher - 10/20/50 day averages cluster in the $193-$206 range, and the RSI around 62 suggests room to run before overbought extremes.

Catalysts that could drive the trade

• Clarity on legal actions - several class action notices surfaced in October 2025. Resolution or meaningful progress on these claims would remove a major risk premium and should trigger multiple expansion.
• Steady broadband demand - broad market reports (12/12/2025 and 12/29/2025) point to ongoing fixed broadband growth in the Americas, which supports revenue stability and modest ARPU gains.
• Debt reduction or clearer capital allocation - any concrete steps toward deleveraging or increased buybacks/dividends would re-rate the stock toward peers.
• Positive subscriber trends - if churn stabilizes and internet customer metrics stop declining, the market will reward the visibility into future EBITDA.
• Broader market rotation into value and yield names - as investors hunt yield and cash-generative businesses, Charter could be a beneficiary.

Trade plan (actionable)

We are proposing a directional long trade with explicit rules and horizon guidance:

• Entry: $215.30
• Stop loss: $190.00
• Primary target: $320.00
• Stretch target: $395.00
• Horizon: long term (180 trading days) - expect the thesis to play out over 46-180 trading days as legal clarity, steady cash flow and multiple re-rating unfold.

Rationale on sizing and timing: the stop at $190 sits above the recent 52-week low area ($180.38), giving room for volatility while capping downside. The primary target of $320 implies a move to roughly 8x-9x reported earnings (depending on trailing EPS variability). The stretch target of $395 would reflect a full re-rating toward ~10x P/E or better and partial recovery to past highs adjusted for earnings growth.

Risks and counterarguments

Every trade has downside; for Charter the key risks are concrete and measurable.

• Legal and regulatory risk: Multiple law firms announced investigations and class actions in October 2025 (10/07/2025 - 10/12/2025), alleging misleading statements about customer metrics. An adverse ruling or surprise damages award would materially damage valuation and cash flow expectations.
• High leverage: Debt-to-equity near 6.0x and an EV of ~$122B mean that a meaningful decline in EBITDA could strain liquidity and force asset sales or curtailed capital returns.
• Customer trends: The company reported periods of internet customer declines noted in litigation-related filings. Continued subscriber deterioration would undermine the earnings base and the re-rating case.
• Competition and technology risk: growing fixed wireless alternatives (including satellite broadband expansion) could pressure pricing and churn over time, especially in less-dense markets.
• Counterargument: The market may be correctly discounting weak medium-term subscriber trends and structural headwinds; if churn and ARPU erosion persist, EBITDA and FCF could fall materially and justify the low multiples. That is why we use a tight stop and time-bound horizon.

What would change our view?

We will materially upgrade our conviction if any of the following occur: (1) an outsized reduction in headline legal exposure or a favorable settlement with limited cash outflow, (2) clear guidance from management showing stabilization or growth in internet subscribers, or (3) a credible deleveraging plan that meaningfully reduces EV leverage in the next 12 months.

Conversely, we would step aside or downgrade if Charter reports sustained subscriber declines, misses cash flow targets, or if litigation risk crystallizes into large damages that impair the balance sheet.

Conclusion

Charter trades at a valuation that assumes the worst: persistent erosion of a business that historically generates strong cash flow. The more likely outcome, in our view, is gradual stabilization and eventual re-rating as legal and operational uncertainties are resolved. For disciplined traders who can stomach the leverage and legal headline risk, buying CHTR at $215.30 with a $190 stop and targets at $320 and $395 represents an asymmetric risk-reward. The key is strict risk management and a willingness to exit quickly if subscriber metrics or litigation outcomes move against the company.

Trade summary: Buy CHTR at $215.30, stop $190.00, target $320.00 (primary) and $395.00 (stretch). Hold on a long-term basis (46-180 trading days) unless stop is hit or fundamental deterioration accelerates.