What happened
Week to date, shares of Charter Communications (CHTR 1.22%) were up 12.6% as of 12:44 p.m. ET on Friday, according to data provided by S&P Global Market Intelligence.
Charter shares got a boost earlier this week when the Biden administration said it would allocate $42 billion toward the goal of ensuring that everyone in the U.S. has access to affordable high-speed internet access by 2030. Shares of Comcast were also rising after the announcement.
So what
The Broadband Equity Access and Deployment Program potentially could be very lucrative for Charter. Texas and California topped the list in terms of the amounts of funding they'll receive, but the program will do a great deal to spread broadband internet access to rural areas across the country where connectivity is lagging. That's consistent with Charter's current growth strategy.
Charter added 76,000 internet customers in the first quarter, driving revenue growth of 3.4% year over year, which was partly driven by its rural construction initiative. The company is undergoing the largest expansion of its footprint in 40 years to bring high-speed internet to underserved areas. The White House's plan will only boost Charter's efforts, and this could spell profitable growth over the next decade.
Management previously explained in the fourth-quarter earnings call that its rural buildout will lead to very high returns on investment due to high incremental margins and low overhead costs.
Now what
Telecom stocks were beaten down last year due to uncertainty about the economy and demand for video and internet subscriptions, but demand for internet subscriptions has proven more resilient than Wall Street expected.
Given that Charter stock is trading at a deep discount to its previous valuations, this could give some investors a fresh reason to consider adding it to their portfolios. The company is adding internet and mobile lines at a rate that is offsetting the declines in video and voice businesses. The shift toward streaming services has hurt telecoms' cable segments, but their internet businesses have provided more stable revenues.
Charter stock traded at over 18 times expected earnings over a year ago but now trades at a bargain forward price-to-earnings ratio of just 11.