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Charter stock is regaining luster(St. Louis Post-Dispatch (KRT) Via Thomson Dialog NewsEdge) Jan. 19--Shares of Charter Communications Inc. are attracting attention as an investment after years in the bargain bin. The share price has nearly tripled in the last year, closing Thursday at $3.37. That's up from a 52-week low of 88 cents, reached March 14. Several analysts are recommending the stock, and financial commentator Jim Cramer of the--street.com even wrote last week that Charter was a potential takeover target. So, what has changed? The biggest change is that Charter has entered the telephone business, a growth vehicle for other cable companies in recent years. Some of those companies also have seen strong increases in their share prices. Charter, a relative latecomer to the business, offers telephone service along with television and high-speed Internet service in all of its markets, although only about half its customers can get Charter's phone service. The company has its headquarters in Town and Country. Charter isn't yet making a profit on telephone service because it's still spending money to make the service available to all of its video customers. Neil Smit, Charter's chief executive, said in a recent conference call that the company's margins on telephone generally turn positive only after it has garnered 20 percent of a given market, and the only markets close to that are in Wisconsin, where Charter first offered the service. Telephone service also tends to make customers more loyal. Charter has seen a decrease in the number of customers who switch to another television service -- such as satellite television -- in markets where it offers the so-called triple-play bundle of telephone, cable and high-speed Internet access. Charter's potential for growth "comes down to whether the voice business hits or not," said Matthew Harrigan, a managing director at Janco Partners Inc. "That's a big opportunity." Other cable companies have been able to move beyond residential phone service to the more lucrative business market, he said. For Charter to do that, it will have to deliver reliable service with excellent customer service, Harrigan said. Charter also needs to show more robust revenue growth, Harrigan said. Revenue has grown in the high single- to low double-digit rates recently. Richard Greenfield, an analyst with Pali Capital Inc. of New York, said in a recent report that he expects Charter's revenue to grow 13 percent this year, up from an estimated 10 percent last year. Its earnings before interest, taxes, depreciation and amortization could grow an estimated 15 percent this year, up from 5 percent estimated for last year. Earnings are a perennial problem for Charter, which has never reported a profit for a full year and has only one positive quarter in recent history. The company's debt of $19.6 billion requires interest payments that gobble up almost all of the excess cash. Debt payments are due to increase significantly a couple of years from now. Charter racked up most of its the debt in the 1990s, when it was actively buying cable systems and revamping them to allow it to offer high-speed Internet service and services like video on demand. In the last year, the company has been trying to reduce the cost of its debt by trading old high-interest bonds for new ones that carry a lower rate but longer maturity. But any savings is limited by Charter's bond rating, deep in the junk-bond category. Greenfield said he's optimistic that Charter can save money on its debt and improve its operations enough to make it an attractive investment for those who can afford to hold the shares for a while. He said the share price could grow to about $4.50 in the next year, with more growth possible if Charter's performance continues to improve. Aryeh Bourkoff, an analyst with UBS Securities in New York, said the company needs to improve its own financial prospects before anyone is likely to buy it. "Given that we believe that the cable industry is ripe for consolidation during the next several years, any signs of sustained fundamental growth at Charter would catapult the company into being a prime target for a consolidator," Bourkoff said. Potential buyers could include Time Warner Cable or another cable operator with strong financial backing. Bourkoff said anyone who would buy Charter would need a plan for refinancing its debt. But he said a company with an investment-grade rating would have an easier time refinancing the debt than Charter can on its own. The most recent example of consolidation in the cable industry is the purchase of systems owned by bankrupt Adelphia Communications. Time Warner Cable is buying the systems and plans to then trade some of them to Comcast and possibly to other companies. Smit, Charter's chief executive, has said Charter could sell other systems that aren't in strategic clusters -- groups of cable systems that are close to each other. The company has made several such deals in the last two years. It also might consider swapping systems with other cable companies to improve the density of its existing clusters, Smit said. "If it makes sense, we'll do it," he said in the conference call last week. Smit said Charter also is looking at ways to reduce costs, such as cutting the number of channels on its digital programming tiers. He had no specifics, but he said the company is "going to repackage the whole thing" to drive up its average revenue per customer and cut costs. To see more of the St. Louis Post-Dispatch, or to subscribe to the newspaper, go to http://www.stltoday.com. Copyright (c) 2007, St. Louis Post-Dispatch Distributed by McClatchy-Tribune Business News. 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