Amid a terrible outing for Wall Street, Charter Communications (NASDAQ:CHTR) added to the pain, with CHTR stock dipping more than 2.5% on Thursday afternoon. In the prior session, CHTR stock plunged 16.4% in what Bloomberg described as the worst trading performance in its history. Analysts balked at management’s broadband expansion plan that soared well above expectations. Further, macroeconomic circumstances don’t favor such ambitiousness.
Per the previously mentioned news agency, “[t]he second-largest US cable company unveiled a three-year network spending budget starting with $10.7 billion next year, $1 billion more than analysts estimated.” Justifying the expenditure, Charter CEO Chris Winfrey stated that the initiative will lead to “higher generational growth.”
Bloomberg summarized the immediate concerns for CHTR stock. “The shift in spending toward infrastructure breaks from the industry’s lavish stock buyback trends and places a bigger bet on revenue growth that may be years away. Charter is also facing competition from fiber optic network operators and wireless home broadband providers.”
It’s worth noting that a few months back in September, T-Mobile (NASDAQ:TMUS) announced that its board of directors approved up to $14 billion in buybacks. Therefore, an expansionary directive – rather than one geared toward rewarding stakeholders – moves against the grain.
As well, the decision presents significant risks for CHTR stock due to the present economic backdrop.
CHTR Stock Takes the Ultimate Contrarian Route
Throughout Thursday’s trading session, the major indices printed gallons of red ink on recession fears. With the Federal Reserve raising interest rates again (this time by 50 basis points), analysts raised the alarm that the central bank may tip the economy into a downturn. If so, the narrative wouldn’t be particularly helpful for CHTR stock.
Indeed, Charter’s announcement comes against the backdrop of two consumer headwinds. First, the personal saving rate declined to near all-time recorded lows recently. Second, credit card debt spiked to all-time highs. Therefore, the expansionary efforts undergirding CHTR stock come at a time when consumer confidence is weak.
To be fair, many economists maintain that American households still sit on a cash pile worth trillions. However, it’s worth noting that in the last significant low of the savings rate, economists somewhat portrayed the metric in an optimistic context – a few short years before the Great Recession.
In defense of Charter’s move, however, it’s attempting to vie “for some of the $100 billion in federal funds aimed at expanding broadband service to poorer and more rural parts of the country,” per Bloomberg.
Nevertheless, high costs will always be a concern for such ambitious ventures. Therefore, investors may need to tread very carefully regarding CHTR stock.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
