Charter Communications (NASDAQ:CHTR) stock is essentially sitting in a holding pattern while the company waits for a Federal Communications Commission ruling on its planned purchase of Time Warner Cable (NYSE: TWC).
Assuming the deal gets approved -- and most people think it will be -- Charter as we know it will disappear. Gone will be the small cable and Internet provider. In its place will rise New Charter, a top-of-the-heap company in both markets.
But, as much as Charter will undergo a major transformation in the coming months, it will really just become a bigger version of what it is now. That means its stock price will still be affected by the same things that affect it now. That also suggests that its current positive momentum could propel it forward.
The past 12 months have been a volatile period for Charter shareholders. The TWC deal added to that, but perhaps the overall health of the cable and broadband industry was even a bigger factor. Going forward in 2016, there are reasons to believe the company's stock could rise.
The FCC could say yes unconditionally
One of the drags on Charter stock is the concern that the Time Warner Cable transaction might be approved with onerous conditions. That has been a go-to move for the FCC in past large deals, when it has imposed pricing limitations or forced the merging companies to sell certain properties.
That could still happen in this case, but it's possible that it won't. Federal regulators may accept the idea that consolidation is coming in the cable and broadband space, and that Charter buying TWC makes more sense than any other player acquiring the company. It's possible that the agency, after its normal long delay, will simply say yes with no (or only token) conditions.
If that happens, Charter stock should rise as investors collectively breathe a sight of relief.
Cord-cutting could slow or stop
Another major drag on cable stocks in general has been the fear that its customer base might decide to "cut the cord" in greater numbers. However, that hasn't really happened yet. Only about 125,000 pay-television subscribers dropped their service in 2014, according to Leichtman Research Group. The numbers increased in the first three quarters of 2015 to about 650,000, but the providers that have already reported fourth-quarter numbers, including the big players, had either slight gains or negligible losses.
It's possible that while dropping cable in favor of streaming services sounds like a good way to save money, most people may not be willing to actually give up traditional pay television. It could simply be a case where consumers have gotten used to being able to watch every show, sporting event, and special program exactly when it airs.
If cord-cutting numbers tail off on a long-term basis, and there are reasons to believe they will, Charter stock should climb.
Broadband should continue to rise
While cord-cutting represents a possible problem for Charter, Time Warner Cable, and the rest of the pay-TV industry, in some ways, it has also been a blessing. If people want to use streaming services -- either with a cable subscription or without one -- they need quality Internet connections.
This is why at the same time as the number of pay-TV customers has dropped slightly, over 3 million homes added broadband service in 2014, and another 2 million-plus did so through the first three quarters of 2015, Leichtman Research Group reported. That trend should continue as streaming services continue to become more popular.
For Charter, that's very good news, because it can add customers on the Internet side to offset any cable losses. And while its pay-TV numbers may be declining, having a relationship with more people allows the company to market other products to those users. That might mean skinny bundles for cord-cutters and cord-nevers, or new products like wireless phone service.
Assuming the TWC deal goes through, Charter will be one of the largest broadband providers in the country, with limited or no competition in many markets. As more people want fast Internet, they will have no choice but to at least consider Charter -- or in some cases, have no choice at all -- if they want high-speed Internet.