Time Warner Cable to Underperform - Analyst Blog
February 20 2013 - 9:12AM
Zacks
We are downgrading our recommendation on Time Warner
Cable Inc. (TWC) to Underperform backed by the company’s
weak financial guidance for 2013. The company is losing video
subscribers without any interruption since 2009. We do not know
when this trend will ultimately reverse.
Why the Downgrade
Growing competitive threats from telecom, satellite TV and
online video streaming operators along with soaring programming
costs are taking heavy toll on Time Warner Cable’s finances. The
company estimated that its programming costs will increase by 10%
in 2013.
Further, the total amount of high-margin political advertisement
will be significantly below the prior-year level. As a result, the
company’s operating margin will decline 0.5-1% in 2013.
Management guided that its fiscal 2013 adjusted earnings per
share will grow by 10-14%, which is way below the initial Zacks
Consensus Estimate of 20% growth. Time Warner Cable currently has a
Zacks Rank #5 (Strong Sell).
Other Negatives
The multi-channel video market in the U.S. is almost
saturated. Roughly 87% of the total 114 million TV household
in the U.S. are at present multi-channel TV subscribers. It is not
easy to gain customers from competitors since each and every pay-TV
operators are offering innovative packages.
For example, the online videos provide an extremely cheaper
source of TV programming unless the customer is very eager to see
real-time programs like sports events. This business model is
gaining momentum, especially when the economic headwind is still
persisting.
Time Warner Cable must change its business model simply as a
pure-play pay-TV operator and broadband service provider in the
U.S. The company’s closest competitor, Comcast
Corp. (CMCSA), has decided to acquire full control of NBC
Universal, which will position the company as a formidable
integrated content developer and TV distribution company.
DIRECTV Inc. (DTV) is significantly expanding
its base in the Latin America region beside the U.S., while
DISH Network Corp. (DISH) is trying hard to become
an integrated wireless-satellite TV bundled service provider.
Despite so many changes in the pay-TV industry’s internal dynamics,
Time Warner Cable is lagging as an innovative business model.
Other Stocks to Consider
Other stocks to consider in the U.S. pay-TV industry are
Comcast, DIRECTV and DISH Network. While Comcast’s net earnings
slightly fell below the Zacks Consensus Estimate in the most recent
quarter, DIRECTV handily beat the same. DISH Network is yet to
release its earnings results. However, all these three stocks
currently have a Zacks Rank #3 (Hold).
COMCAST CORP A (CMCSA): Free Stock Analysis Report
DISH NETWORK CP (DISH): Free Stock Analysis Report
DIRECTV (DTV): Free Stock Analysis Report
TIME WARNER CAB (TWC): Free Stock Analysis Report
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