Cable One To Acquire Fidelity Communications For $525.9M

Cable One (NYSE:CABO) recently signed an all-cash deal worth $525.9 million to acquire Fidelity Communications. The deal includes Fidelity’s “data, video and voice business and certain related assets.”

Cable One expects cost synergies of $15 million on an annual basis, within three years of completing the transaction. Additionally, the acquisition may generate tax benefits worth $87 million “on a present value basis.”

Fidelity, which provides services to both residential and business units, has about 114,000 residential and 20,000 business customers. Notably, the company operates in Oklahoma, Arkansas, Texas, Missouri, Illinois and Louisiana.

The acquisition, which is expected to close in fourth-quarter 2019, is anticipated to expand Cable One’s footprint in the non-urban markets. This may help the company boost its market share and grow its residential and business customer base. Notably, Cable One currently has more than 800,000 residential and business customers.

Cable One, Inc. Revenue (TTM)

Transaction in Detail

Cable One stated that Fidelity’s residential high-speed data and business services contributed to more than 50% of its revenues. Additionally, with a high-capacity plant and upgraded systems, Fidelity can deliver higher broadband speed.

The above factors may strengthen Cable One’s residential data and business services revenues, which were the main top-line drivers in fourth-quarter 2018.

Notably, residential data revenues (46.8% of its total revenues) and business services revenues (14.9%) increased 12.3% and 10.3% year over year to $126.4 million and $40.2 million, respectively in the last reported quarter.

Additionally, Cable One has the opportunity to charge higher prices for providing higher Internet speed. This is expected to boost average revenue per user (ARPU). Notably, residential data ARPU and business services ARPU increased 9.4% and 2.1% year over year in fourth-quarter 2018.

Further, owing to Fidelity’s higher broadband speed and geographical advantage, Cable One is expected to increase its data penetration rate. As of Dec 31, 2018, data penetration rate was 31.7%, up 1.7% year over year.

Acquisitions to Aid Cable One’s Top Line

Prior to the latest acquisition, Cable One had completed the acquisition of Clearwave Communications this January.

The acquisition is expected to help Cable One deliver enhanced services to business service customers as it will have access to Clearwave’s high-capacity fiber network.

Additionally, Cable One expects to widen its fiber footprint and increase customers in the business segment.

Notably, Clearwave Communications, which is a “facilities-based service provider”, owns and operates high-capacity fiber network offering services to business and enterprise customers.

We believe that strength in Cable One’s core business coupled with relevant acquisitions will further strengthen its business prospects.

Zacks Rank & Stocks to Consider

Currently, Cable One carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader consumer discretionary sector include Comcast (NASDAQ:CMCSA) , Lions Gate Entertainment LGF.A and Shaw Communications (NYSE:SJR) . While both Comcast and Lions Gate sport a Zacks Rank #1 (Strong Buy), Shaw Communications carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Comcast, Lions Gate and Shaw Communications stands at 12%, 15% and 5%, respectively.

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