Altice USA (Pending:ATUS), a facilities-based cable provider, has filed an amended S-1/A registration, seeking to sell 46.5 million shares of its stock.

Certain selling shareholders are also expected to sell shares as well -- all at a midpoint price of $29.00 per share. If ATUS prices at this point, and underwriters exercise their option to purchase additional shares, the deal could leave ATUS with a whopping market cap of $21.5B.

The company provides a variety of telecommunications services in Texas, New York and in 16 other U.S. states. However, when combined with a high debt load and heavy competition, investors may wish to avoid this IPO.

Company Overview

Based in Bethpage, New York, Altice USA is a product of Cablevision Systems, Suddenlink (Cequel Corporation) and France-based parent Altice NV. Altice acquired Suddenlink and Cablevision Systems for $26.8 billion. The company's most valuable area of service includes certain areas of Texas, as well as the metropolitan New York region, and its total footprint passes through 8.5 million residences throughout 18 states.

Executive Management

Dexter Goei is the company's President of the Board and has served as Chairman and CEO since 2009. Prior to joining Altice USA, Mr. Goei spent 15 years in investment banking with Morgan Stanley and, prior to that, JP Morgan. He also served as Co-Head of Morgan Stanley's European TMT Group before joining Altice. Mr. Goei earned cum laude honors at the School of Foreign Service at Georgetown University.

After spending 21 years in investment banking and corporate finance, Charles Stewart joined Altice USA. Mr. Stewart previously served as CEO of Itau BBA International plc as well as an investment banker in a number of different roles at Morgan Stanley. Mr. Stewart also served as Deputy Head of Investment Banking for EMEA. He earned his degree from Yale University.

Competitors

Major competitors that provide similar services to that of Altice USA include Verizon (NYSE:VZ), Frontier (NYSE:FTR), DISH Network (Nasdaq:DISH), CenturyLink and AT&T (NYSE:T). According to Altice USA management, the New York areas faces intense competition from Verizon, due to the latter's Fiber To The Hobe (FTTH) network infrastructure that passes through a large number of residences.

With a potential P/S ratio of 2.3x if pricing occurs as described above, ATUS would be priced well above the industry average of 1.5.

Financial Overview

Altice generates revenue through several streams: Residential (Pay TV, Broadband, and Telephony), as well as Business Services, and Advertising. For the three mos. ended March 31st, 2016-2017, Altice generated total revenues of $628M and $2.3B, respectively. Net losses for the same time periods ticked in at ($190.1M) and ($76M), respectively. Gross margins, again over the same time period, as measured using total revenues and programming/other direct costs decreased slightly from 70% to 67%.

As of March 31, 2017, Altice reported cash and equivalents of $463.9M and total debt of $24.1M.

IPO Overview

Selling stockholders are selling 34.5 million shares, and the company itself is selling 12 million shares. Altice USA expects to receive $331 million in net profits, not including underwriter over-allotments. According to the IPO, management plans to use the proceeds to repay the 10.875% Senior Notes due 2025 that were issued by its subsidiary, CSC Holdings, LLC. After repaying this debt, Altice USA will still have total liabilities of $34 billion as of December 31, 2016, so the IPO is just a small step in reducing the company's total debt load.

Listed managers of the IPO include Goldman Sachs, Citigroup, Morgan Stanley, J.P. Morgan and five other major IPO managers.

Conclusion: Consider Caution

Due to its heavy debt load and increasing competition in a valuable market, we recommend that investors exercise caution with this IPO.

Although Altice can invest in network upgrades at low financing costs and consummate large transactions, the resulting debt service may be too expensive in an environment of increasing interest rates.

Multiple recent acquisitions could also take time to be fully realized.

The deal will likely be high profile however, and we are hearing it has pushed to price this Wednesday evening. It is already oversubscribed.

A short term trade could be in order for aggressive investors.