Fiber Infrastructure Upgrades Will Improve Connectivity Despite Integration Risks

Key Takeaways

• Structural simplification from the Charter acquisition and ongoing share repurchases support earnings visibility and drive value creation.
  
• Investments in fiber and high-speed broadband position assets to capture increased demand, fueling sustainable, long-term revenue and margin growth.
  
• Heavy reliance on Charter, regulatory and execution risks, competitive threats, and high capital spending create ongoing uncertainty around revenue growth and sustained margin strength.

Catalysts

Engages in a range of communications businesses in the United States.

• The pending acquisition of Liberty Broadband by Charter, with a fixed exchange ratio and expected closing in 2027, is likely to unlock structural simplification and value realization, improving earnings visibility and potentially driving NAV accretion as market complexity is reduced.
  
• Substantial, ongoing investments in fiber infrastructure and last-mile connectivity, along with recent launches of high-speed broadband in underserved markets like rural Alaska, position underlying assets to capture the rising demand for fast, reliable internet-bolstering long-term revenue growth potential.
  
• Broad, recurring demand for data services from enterprise and institutional clients (schools, health care) has delivered record OIBDA margins, indicating strong participation in the ongoing upgrade cycle and providing a stable core for future margin and earnings expansion.
  
• Share repurchase activities at Liberty Broadband (via Charter share sales) and Charter itself, combined with deleveraging from tax-efficient asset management, provide a supporting tailwind for EPS and free cash flow per share growth.
  
• Sector-wide trends of ongoing digitization and the proliferation of data-intensive applications-streaming, IoT, remote work-fuel higher average revenue per user and support resilient, long-term top-line growth for cable broadband leaders.

Liberty Broadband Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Liberty Broadband's revenue will grow by 2.6% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 103.0% today to 68.6% in 3 years time.
• Analysts expect earnings to reach $778.5 million (and earnings per share of $5.76) by about September 2028, down from $1.1 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 22.8x on those 2028 earnings, up from 8.0x today. This future PE is greater than the current PE for the US Media industry at 20.3x.
• Analysts expect the number of shares outstanding to grow by 0.45% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.37%, as per the Simply Wall St company report.

Liberty Broadband Future Earnings Per Share Growth

Risks

• Liberty Broadband's long-term financial prospects remain highly concentrated in Charter Communications, meaning any operational, regulatory, or market setbacks at Charter could have immediate and outsized negative impacts on Liberty Broadband's revenues and net earnings.
  
• The planned spin-off of the GCI business and subsequent acquisition of Liberty Broadband by Charter may introduce uncertainty, potential execution risk, and interim dis-synergies, all of which could limit revenue stability, increase integration costs, or pressure earnings during and after the multi-year transaction process.
  
• Competitive threats in both the Alaska market (via Starlink and other satellite/alternative providers) and the broader U.S. broadband space (from fiber and wireless entrants) risk eroding market share, compressing revenue growth, and placing persistent pressure on net margins for both GCI and Charter's underlying operations.
  
• Potential legal or regulatory changes, such as the U.S. Supreme Court's upcoming decision regarding the constitutionality of the Universal Service Fund or other broader regulatory actions affecting broadband pricing and subsidies, could increase compliance costs, reduce funding sources, and impact Liberty Broadband's revenue streams or operating profit.
  
• The company anticipates elevated capital expenditures in the near term-particularly for GCI's rural Alaska build-out-while debt levels and debt servicing requirements remain substantial post-refinancing, potentially straining free cash flow, limiting strategic flexibility, and increasing pressure on net margins and earnings during periods of macro or sector volatility.

Valuation

• The analysts have a consensus price target of $99.0 for Liberty Broadband based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $115.0, and the most bearish reporting a price target of just $83.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.1 billion, earnings will come to $778.5 million, and it would be trading on a PE ratio of 22.8x, assuming you use a discount rate of 7.4%.
• Given the current share price of $60.46, the analyst price target of $99.0 is 38.9% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.