Charter Communications, Inc. (CHTR); Worth Watching or Buying

Investors should view Charter Communications, Inc. (NASDAQ:CHTR) differently, according to Northland Capital Markets. Analyst, Tom Eagan upgraded the cable TV service provider to "Outperform" from "Market Perform" with a $146 price-target – potential upside of 15% to target.

The analyst's target isn't too courageous considering CHTR's 52-week high is $144.02.

Charter Communications provides entertainment, information, and communications solutions to residential and commercial customers in the United States. The company offers cable video programming, internet, and telephone services.

[Related -Time Warner Cable Inc (TWC): What Should Be The Optimal Price For TWC?]

As of December 31, 2013, it served approximately 4.2 million residential video customers; approximately 4.4 million residential Internet customers; approximately 2.3 million residential voice service customers; and approximately 567,000 commercial primary service units, primarily small-and medium-sized commercial customers.

Shares are mildly higher on Eagan's upgrade as he says, "The resurrection of CHTR has been exciting to watch. Just four years after bankruptcy, the company is likely to grow both its customer base and OCF (operating cash flow) materially faster than its peers. We, therefore, see the recent pullback as an opportunity to invest in an operator positioned for tremendous FCF (free cash flow) gains in 2015-2016. Moreover, as cable investors ponder the prospects for the approval of the CMCSA/TWC merger, we expect rotation into CHTR."

[Related -Harmonic Inc (HLIT): Profit From The Rise Of Mobile Video With This Stock]

Let's take a look at what it would take for Charter to make its way to $146 or maybe even beyond. We think the price-to-sales (P/S) is the fairest way to evaluate CHTR as EPS would require a P/E well beyond the industry's average.

For example, $146 would require a P/E on 2015's consensus estimate of $3.44; whereas, the average peer trades at 12.76 times profits per share. Meanwhile, Charter's P/S ratio of 1.6 is more in-line with competitors at 1.69.

For 2014, analysts forecast sales of $9.01 billion and $9.64 billion for 2015. At the industry average P/S ratio of 1.69, CHTR's stock would price out at $143.46 and $153.49 based on 2014 and 2015's consensus sales forecasts, respectively. Both aren't that too far off from Eagan's target, perhaps he rounded up to a P/S ratio of 1.72?

Now, shares would be unattractive at current levels if Wall Street valued the communications and entertainment company at its average P/S since emerging from bankruptcy. The average P/S ratio since 2011 is 1.13, which translates to $95.92 and $102.63 using 2014 and 2015 revenue estimates.

Overall: Charter Communications, Inc. (NASDAQ:CHTR) should hit Tom Eagan's target sometime before the end of 2015 based on the industry average P/S ratio. However, upside could be limited as hitting Northland Capital Markets'$146 requires CHTR to trade well above its typical price-to-sales valuation.