Updates: CHTR and WDC


In my last update on CHTR  in mid February this year (4Q 2018), CHTR had a FCF of ~$7B (FCF = EBITDA – CapEx) on ~235m shares out for an FCF/share of $25-$30. This amounted to a 12-13x FCF multiple.

We can run the same numbers using current (3Q 2019) results. FCF = $16B – $7.5B = $8.5B. Divided by the 226.5m shares, we get an FCF/share of $37.5/share. At current prices of $475/share, CHTR still trades at the same FCF multiple (12-13x).

The run up in price has has matched the run up in performance. However, EV/fwd.EBITDA has increased from 8.8x to 10x, while net debt/EBITDA is essentially flat near the targeted range of 4.5-4.6x.

For next year EBITDA is expected to grow by ~9%, while CapEx is expected to decline by  3-5%. Thus, FCF/share is expected to rise 12-14%. If the valuation multiple remains the same, then the stock should return the same low to mid-teen numbers (IV ~ $530). Furthermore, this should happen, regardless of what else transpires in the broader market.


During my last update, WDC was trading in the mid $30s, and things looked terrible. Since then it nearly doubled before falling hard by about 20%+ in the last few weeks.

Other than the US-China trade drama, what else has changed?

LT debt is now $9.97B (down from $10.25B last Q), TTM interest ~$475M is flat. The cycle is showing signs of bottoming. Consensus estimates (for what they are worth), have two and three years out EPS estimates at $6 and $9, respetively. A 15x peak multiple, with a 12% discount rate still suggests IV in the $90-$100, nearly double current prices.

From a technical standpoint, it currently trades around P/S (TTM) around 0.9. Historically, it has been a good idea to buy near P/S ~ 0.7-0.8 and to sell near 1.3 and over.

Options on the name are very juicy, given the short to medium term uncertainty. It may not be a bad idea to use puts opportunistically to add to my current modest (1%) position.


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