Liberty Media Corp (LMCA), Charter Communications, Inc. (CHTR): Is John Malone’s Return to Cable a Bullish Sign?

John Malone has returned to the cable industry. Should investors follow him into his newest investment at its current price? Let’s dig deeper to find out.

Malone’s firm, Liberty Media Corp (NASDAQ:LMCA), has bought a 27.3% stake in Charter Communications, Inc. (NASDAQ:CHTR), one of the largest providers of cable service in the U.S. At around $95.50 per share, the deal has a total transaction value of around $2.62 billion.

Since the middle of 2012, Charter Communications, Inc. (NASDAQ:CHTR) shares have advanced significantly, from $68.70 per share to more than $102 per share.

Get to know Charter

Charter Communications, Inc. (NASDAQ:CHTR) is considered one of the biggest cable service providers in the U.S, serving around 5.4 million residential and commercial customers, with 62% of the company’s customers subscribing to a bundle of two or more services.

As of December 2012, Charter Communications had around 4 million residential video customers, 3.8 million residential Internet customers and 1.9 million residential telephone service customers.

The majority of its revenue, $3.64 billion, or 48.5% of its total 2012 revenue, was generated from the video segment. The Internet segment ranked second, with nearly $1.87 billion in revenue in 2012,  while the telephone segment contributed around $828 million in revenue.

In 2012, the company experienced a growth in average video revenue per user, from $72 to $74. Its average Internet revenue stayed steady at $42, while average telephone revenue dropped from $41 to $37.

Free from bankruptcy, but still in debt

Charter filed for bankruptcy in March 2009 because of its huge debt burden of around $22 billion. Throughout the bankruptcy process, the company has significantly reduced its debt by more than $9 billion.

However, Charter Communications, Inc. (NASDAQ:CHTR) is still extremely leveraged. As of December 2012, it had $12.8 billion in long-term debt, but only nearly $150 million in total stockholders’ equity. Its deferred tax liabilities, which could be considered an interest-free loan from the government, were more than $1.1 billion.

In 2010, Charter Communications, Inc. (NASDAQ:CHTR)’ operating income began to improve. However, its high interest expense has eaten away its profits. In 2012, it made $916 million in operating income, but still booked a net loss of $304 million, or $3.05 per share.