DAILY UPDATE: PBMs, Cable Companies Merge as Stock Markets Rise

Posted on May 17, 2025 by Dr. David Edward Marcinko MBA MEd CMP™

MEDICAL EXECUTIVE-POST – TODAY’S NEWSLETTER BRIEFING

***

Essays, Opinions and Curated News in Health Economics, Investing, Business, Management and Financial Planning for Physician Entrepreneurs and their Savvy Advisors and Consultants

“Serving Almost One Million Doctors, Financial Advisors and Medical Management Consultants Daily“

A Partner of the Institute of Medical Business Advisors , Inc.

http://www.MedicalBusinessAdvisors.com

SPONSORED BY: Marcinko & Associates, Inc.

***

http://www.MarcinkoAssociates.com

Daily Update Provided By Staff Reporters Since 2007.
How May We Serve You?
© Copyright Institute of Medical Business Advisors, Inc. All rights reserved. 2025

REFER A COLLEAGUE: MarcinkoAdvisors@outlook.com

SPONSORSHIPS AVAILABLE: https://medicalexecutivepost.com/sponsors/

ADVERTISE ON THE ME-P: https://tinyurl.com/ytb5955z

Your Referral Count -0-

CITE: https://www.r2library.com/Resource

Arkansas just passed a first-if-its-kind law banning vertical integration between pharmacy benefit managers (PBMs) and pharmacies. Arkansas Governor Sarah Huckabee Sanders on April 16th signed a law prohibiting any company that owns a PBM from also owning or operating pharmacies in the state. The goal of the law is to eliminate “conflicts of interest” that lead to higher drug prices and care delays, according to a press release.

CITE: https://tinyurl.com/2h47urt5

🟢 What’s up

  • Nvidia climbed 0.42% on reports that the US and United Arab Emirates are nearing a deal that would allow the UAE to import 500,000 chips per year. But shares lost some ground after the company denied reports that it will build a new R&D center in Shanghai.
  • Galaxy Digital made its long-awaited debut on the Nasdaq today, with the crypto/data center company climbing 4.06%. The company is reportedly in conversation with the SEC to tokenize its stock.
  • Virgin Galactic rocketed 43.28% higher on the space tourism company’s announcement that it will restart commercial spaceflights.
  • Coinbase climbed 9.01% after Oppenheimer analysts said the market’s reaction to recent news of a hack and an SEC probe were “overblown.”
  • CoreWeave soared 22.09% after Nvidia disclosed a larger stake in the data center provider than expected.
  • Quantum computing stocks popped on news that the company Quantum Computing has finished laying the groundwork for a quantum chip foundry. Shares of Quantum Computing rose 39.29%, while D-Wave Quantum gained 11.06%.
  • Archer Aviation soared 9.11% after being named the Official Air Taxi Provider of the 2028 Los Angeles Olympic and Paralympic Games, which sounds made up but is apparently very impressive.
  • Vistra Corp popped 3.06% on the news that it has acquired seven natural gas facilities from Lotus Infrastructure Partners for $1.9 billion.

What’s down

  • Novo Nordisk slipped 2.69% on the news that its CEO is stepping down after eight years at the helm, due to the pharma giant’s recent challenges.
  • Applied Materials sank 5.25% after the semiconductor maker’s revenue last quarter came in under analyst estimates.
  • Cava crumbled 2.27% thanks to financial forecasts of slower growth for the salad bowl chain in the coming year.
  • Take-Two Interactive Software lost 2.41% due to weaker-than-expected projections for net bookings this quarter and this year.
  • Doximity plunged 10.08% after the healthcare platform issued fiscal guidance for the current quarter and full year that came in below analyst expectations.

CITE: https://tinyurl.com/tj8smmes

Two of the biggest cable companies in the United States have agreed to merge, marking a major milestone in consolidation as cord-cutters continue to ditch their pricey TV packages, thus forcing companies to adjust to their dwindling futures. Charter Communications, which operates under the Spectrum branding, is combining with its privately held rival Cox Communications, which it values at $34.5 billion including debt, the two companies announced Friday.

Visualize: How private equity tangled banks in a web of debt, from the Financial Times.

COMMENTS APPRECIATED

PLEASE SUBSCRIBE: MarcinkoAdvisors@outlook.com

Thank You

***

***

***

***

EDUCATIONAL TEXTBOOKS: https://tinyurl.com/4zdxuuwf

***

Filed under: Drugs and Pharma, Ethics, Information Technology, Investing, Marcinko Associates, Recommended Books, Sponsors | Tagged: , , , , , , , , , , , , , , , , | Leave a comment »

TELECOMMUNICATIONS: The Infinite Game

Posted on October 6, 2024 by Dr. David Edward Marcinko MBA MEd CMP™

By Vitaliy Katsenelson, CFA

***

CABLE COMPANIES
CHTR, just like Comcast, showed only a very slight decline in broadband customers in the last quarter. Most of the decline came from the US government removing subsidies for rural customers. Overall, the business is doing very well.

I want to remind you that broadband is not a secularly challenged business, but an advantaged business that we believe will resume growth soon. 

Cable companies continue to offer a great product on the market, which is actually improving in quality as I type this because they are upgrading their networks to be as fast as fiber. They should be done with their full network upgrade in a year or so.

Also, cable companies have shown that they are very good at attracting wireless customers from wireless carriers. (They have grown their wireless business by 25% in 2024). The more we analyzed this industry. the more bearish we became on AT&T and Verizon.

Though owning cable stocks has not been rewarding (I’m being very gentle to myself), the more research we’ve done into the industry, the more convinced we’ve become that once the dust settles, their market share will not decrease but likely increase. Fixed wireless has taken all the share it will take and will start donating share to cable companies as customers get frustrated with intermittency of the service and usage caps. 

The industry is moving towards the bundle – one bill for broadband and wireless (and maybe TV service, though that has been marginalized by streamers). It’s a lot easier for cable companies to add wireless customers than for wireless companies to add wired broadband customers. 

This point is paramount! 

It costs very little for a cable company to add a wireless subscriber, as 80-90% of a subscriber’s data is traveling on Wi-Fi (i.e., the cable network is already there). 

Meanwhile, the cost of building out broadband is pushing into uneconomical territory, for several reasons. First of all, all the low-hanging fruit has already been picked. It costs, let’s say, $50-100 thousand dollars to lay a mile of fiber, whether that covers one or a thousand homes. High-density areas already have cable or fiber service. With the latest upgrades the cable industry is doing, both their upload and download speeds are on par with fiber. Second, labor costs have gone up significantly over the last few years.

Verizon just announced buying Frontier Communications for $20 billion. Frontier has 2.2 million fiber subscribers. With this purchase, Verizon is paying $9,000 per fiber subscriber.

Let’s examine the economics of this transaction:

Frontier gets about $800 a year of revenues from these broadband customers (on a par with Charter and Comcast). Let’s say they achieve a 23% margin (Frontier is barely a profitable business, so I’m using Charter’s margins). Thus, each customer will generate $184 of profit for them. So Verizon is paying $9,000 for $184 of profit, and it will take Verizon 49 years to break even on this transaction. 

As you can see, these economics make no sense. Verizon and AT&T are horrible at capital allocation, and this deal is a sign of supreme desperation. The market has been slow to see what we see in Charter and Comcast, and this is always our goal – we want the market to agree with us, later. 

Our very conservative estimate of Charter’s 2028 free cash flow per share is $48-60. In this estimate we are assuming no customer growth in broadband and 2% price increases a year. At 13-15 times free cash flows, we get a price of around $630-900 in 2028. Charter is trading at about $320 as I write this. 

We really like Charter’s management. We heard an anecdote about Charter CEO Chris Winfrey that warmed our soul. A week after he became CEO, Charter announced a huge, multibillion-dollar upgrade for its broadband network. This news sent the stock down 15%. (I wrote about it; we thought it was a great idea.) Anyway, someone met Chris at a party and told him, “That’s the right move, but very gutsy.” Chris said, “We build the company for our grandchildren.” This is what we want to see from our CEOs. They’re willing to sacrifice short-term profitability to improve the business’s moat.

Often, the idea of “creating shareholder value” is misunderstood. Paying employees poorly, abusing suppliers, and trying to rip off your customers is not going to create long-term (key term) shareholder value. It may bring short-term profits and boost the stock price, but it shortens the company’s growth runway and erodes its moat.

I don’t want to get off topic, but I’ve been thinking a lot about this. We’ve spent a lot of time studying the aircraft industry; our focus was Airbus, and thus we spent a lot of time looking at Boeing.

Boeing, under previous management, focused on “shareholder value creation.” It cut costs, laid off a lot of workers, including many quality control folks. Its “shareholder value creation” didn’t stop there; it willingly lied to regulators and took shortcuts in safety. Specifically, Boeing made critical design changes to its 737 MAX aircraft without fully informing regulators or pilots, and pushed for reduced pilot training requirements to save costs. These decisions directly contributed to two fatal crashes in 2018 and 2019, resulting in 346 deaths and the worldwide grounding of the 737 MAX for nearly two years.

Did its management actions maximize shareholder value? Well, it depends on the time frame. It boosted short-term earnings and drove the stock price higher. It may have made its CEO rich beyond belief.

But.

Over a longer time frame, these decisions have destroyed shareholder value. People used to say, “If it’s not Boeing, I’m not going.” Today, I become slightly more religious when I board a Boeing plane. The company has incurred over $20 billion in direct costs related to the 737 MAX crisis, including compensation to airlines and families of crash victims, and increased production costs. 

This doesn’t account for the incalculable damage to Boeing’s reputation and loss of market share. It gave Airbus an opening to produce more planes and take market share, with Airbus surpassing Boeing in deliveries and orders in recent years, particularly in the crucial narrow-body market.

We want to own companies that aim to maximize long-term shareholder value by treating all their stakeholders fairly. We want our companies to play the infinite game. What does “fairly” mean in this context? I’ll borrow from US Supreme Court Justice Potter Stewart, who famously dodged defining pornography by saying, “I know it when I see it.”

Update: After I wrote the above, Charter proposed to buy Liberty through a merger. We don’t own Charter directly, but rather through Liberty Broadband, which holds a 25% stake in Charter. Liberty was trading at a significant discount (around 30%) to the value of its Charter shares. Liberty agreed, but at a higher price. Our estimate of Liberty’s net asset value is about $88. The shares are trading at $75 as of this writing (up from $60). If the deal goes through we’ll end up owning shares of Charter at a significant discount.

COMMENTS APPRECIATED

Thank You

***

***

Filed under: "Ask-an-Advisor", Experts Invited, iMBA, Inc., Information Technology, Investing | Tagged: , , , , , , , , , , , , , , , | Leave a comment »

CHARTER COMMUNICATIONS: Why We’re Confident in Our Investment

Posted on May 30, 2023 by Dr. David Edward Marcinko MBA MEd CMP™

By Vitaliy N. Katsenelson CFA

***

***

You can also listen to a professional narration of this article on iTunes, Google & online.
CHARTER COMMUNICATIONS: Why we’re confident in our investment

December 12, 2022

When my wife Rachel and I were getting married, the preparations for the wedding were stressful. It was the usual stuff – finding caterers, picking a wedding dress and invitations, shrinking the enormous guest list, and making a lot of other (in hindsight), unimportant decisions. (My advice to my kids: Have a destination wedding in Hawaii on the beach; this will shrink your guest list by 90%, leaving only those who really care about you. This way, you’ll be planning a small party, not orchestrating a giant brawl.)

I remember the preparations for the wedding being unnecessarily frustrating. My bride and I thought once we got married and the wedding was behind us, life would get easier. My father made an important observation: “Do you think all your problems will go away once you get married? This is when a different, often more difficult, chapter of your life begins – you’ll be facing different, more important, problems.”

He was so right.

This applies to investing as well. Researching companies is preparation for the wedding. But after we buy a stock – “get married” – is when the real research begins, because life happens to companies. I have to admit, this wedding analogy is imperfect on many levels: Selling stocks is not as traumatic as getting divorced (our stocks don’t know we own them). We are not really married to our stocks; we would love to own them for a long time but will sell them with ease if new information starts hinting that our initial thesis was wrong.

I did not enjoy the preparations for my wedding, but I actually love doing research. Most of our research doesn’t turn into weddings – we buy only a few companies a year but research hundreds.

If this analogy is so bad, why keep it? It highlights what investing is and, as importantly, what it is not. Plus, I sank an hour into it, which I’ll never get back.

We had done a tremendous amount of research before we bought Charter Communications (CHTR). It seems like we have done twice as much research since we bought CHTR (“got married to it“) and have been kicked in the face by the declining stock price. However, we are convinced that our initial decision, although in hindsight it was imperfectly timed (an understatement), was the correct one.

The market’s concerns about the competitive threat to cable operators from fiber and fixed wireless drove all cable stocks down, creating an opportunity (more on that later). The more work we have done, the more we are convinced that this threat, though it may shave off a few percent from revenue growth in the short run, will have little impact on cable operators’ cash flows in the long term.

This is what I wrote about wireless competition:  Let’s start with 5G. It is exponentially better than 4G. It is faster, has less latency, and drains batteries less. But it is still constrained by the scarcity of wireless spectrum – the “air pipe.” This is why wireless providers usually limit how much you can download on your device. Typical wireless providers put a cap of 50GB a month of downloads per household. The average cable customer consumes 400GB of data if they have TV service and 700GB if they don’t. (Remember, if you don’t have TV, you stream it over the internet, and thus consume more data.) Our internet data consumption is only moving in one direction, at a very fast pace, indefinitely: up! This will put further stress on the finite 5G spectrum, whereas broadband’s upward bound is virtually unlimited.
 
5G wireless customers will pay as much as Charter cable customers but will get 10-15x less data and slower speeds. If each 5G customer used as much internet as broadband customers, wireless providers would either go broke (they’d have to be spending hundreds of billions of dollars on new spectrum) or download speeds would slow to a crawl.The observation above is partially correct. T-Mobile, after merging with Sprint, has more spectrum than AT&T and Verizon and has been offering unlimited broadband, at very fast download speeds, for only $30 a month.

Brendan Snow (IMA analyst) and I went to the T-Mobile store to check it out. T-Mobile offered broadband in Brendan’s neighborhood but not in mine. I live in a very average suburban neighborhood, but despite owning more spectrum than its rivals, T-Mobile doesn’t have enough spectrum capacity to offer its service to me. Remember, broadband users consume 50–70 times more broadband than traditional wireless consumers.

Also, this offer is only available to customers who have wireless service with T-Mobile. I have read reviews of T-Mobile’s broadband service, and they all mention one thing in common: Service is intermittent and speed fluctuates a lot depending on the time of day. Bottom line: This service will take some market share from cable providers in areas with low population density, where cable companies have limited presence anyway.

Fiber is another threat that drove cable stocks down. “Fiber to the home providers” offer 1 gigabit speed on both downloads and uploads. Both Charter and Comcast have announced they will be upgrading their networks to DOCSIS 4.0, a new technology which, at a relatively small cost (less than $200 per customer), will put cable data speeds at parity with fiber. Comcast announced that they will roll out the technology everywhere by 2025, while Charter said they will focus on markets where they face the most competition from fiber. DOCSIS 4.0 will turn cable networks from smart to “brilliant” (this is how one cable executive described this technology), promising to increase uptime and reduce maintenance capital expenditures.

Our thinking on the wireless offerings by Charter and Comcast has changed. Initially, we thought it was a defensive move to compete with wireless providers, with the ultimate goal of bundling it with internet service and reducing churn. We assumed it would produce a limited stream of cash flows.

We changed our thinking here.

Cable companies have a structural cost advantage in offering wireless service, as consumers have been trained to connect their phones to Wi-Fi. This means that when we are on our mobile phones, we offload 90–95% of our data to wired networks, where cable companies have virtually unlimited capacity.

Wireless companies have to spend a tremendous amount of money on building and maintaining wireless networks, and pay tens of billions of dollars for spectrum. Cable companies, however, are able to shortcut this expense by buying buckets of data from wireless companies (AT&T and Verizon). As a result, both Charter and Comcast are offering wireless service at a significant discount to their wireless competitors.

The wireless business is growing at a rate of 30–40% a year, requiring minimal investment from cable companies. In a few years, once it reaches scale, it will become a significant contributor to earnings.

December 18th, 2022

Just as we were ready to send out this letter, right after I wrote the above, Charter held an investor day on December 13th. Management said they would roll out DOCSIS 4.0 across their full footprint in three years. The cost per customer is going to be $100, not the $200 that we, and everyone else, had expected. This was great news! $100 is less than two months of internet subscription.

Charter has 55 million customers, so additional investment (capital expenditure) over the next three years will total $5.5 billion. Charter will pay for it from its abundant cash flows. This new technology will allow customers to download and upload at 1 gigabit per second (with potential to take it up to 10 gigabits per second), putting cable technology completely on par with fiber.

In addition to increasing the company’s competitive advantage and pricing power (its product is priced lower than the fiber competition), management said that this investment in DOCSIS 4.0 will reduce its maintenance capital expenditures by $600 million to $1 billion a year.

The stock declined by 20% in response to the news. We laughed!

The market did not appreciate this investment, as it meant that Charter would have to reduce the amount of money it spends on buying back its own stock by the increase in capital expenditures. This is one of the best examples of time arbitrage we have ever seen. The market is not looking past its nose. Charter’s management’s time horizon is years into the future, as it should be.

The value of any asset, be it a company, cow, or bond, is the present value of its future cash flows. We put the new assumptions into our Charter discounted cash flow model: We reduced its cash flows by $5.5 billion over the next three years, and then increased them by $800 million after that (a midpoint number in the company’s guidance). Cost savings alone, ignoring the improved ability to raise prices and grow market share, increase Charter’s value (the present value of cash flows) by about 10%.

Paraphrasing Ben Graham, in the short term the market is a speculative casino but in the long term it is an Excel spreadsheet running discounted cash flows.

All cable stocks have declined, so we did some minor reshuffling of the portfolio. In taxable accounts we sold all of Charter, took a short-term loss, and bought Comcast. In nontaxable accounts we reduced our position in Charter and bought Comcast. We also bought Liberty Broadband in almost all accounts. Liberty Broadband is a company controlled by John Malone that owns about 30% of Charter. The Liberty discount for Charter has widened to about 25%, giving us the opportunity to buy Charter at a significant discount. Though this number may vary by portfolio, our exposure to the cable industry is now about 5%.

Charter and Comcast are like two first cousins who share the same grandparent – John Malone. A large part of Comcast is TCI, a company started by Malone. Today, Malone personally owns roughly 2% of Charter through his Liberty Broadband holding.

Cable is a much better business than wireless, for one reason: It has much less competition. Charter and Comcast compete with wireless carriers and phone companies, but they don’t compete against each other. Their footprints don’t overlap and will never overlap. In fact, they have joint ventures together. Charter’s and Comcast’s cable businesses are of a similar size. Charter has a laser focus on the cable business, whereas Comcast also has a media business (it owns NBC, Sky, and other media properties). Charter is more leveraged than Comcast, but its stock is cheaper. We like the management of both companies.
***

COMMENTS APPRECIATED

Thank You

***

***

Filed under: "Ask-an-Advisor", Experts Invited, Interviews, Investing | Tagged: , , , | Leave a comment »