A rosier outlook for Charter Communications’ digital roll-out lent considerable luster to the broader sector Thursday, as cable shares climbed substantially on a day most stocks managed only modest boosts.
Richard Bilotti, an analyst for Morgan Stanley Dean Witter in New York, instigated the cable merriment when he wrote in an industry report that Charter Communications is likely to see higher digital-cable subscriptions than previously projected. It was welcome word for a sector battered by earlier fears that satellite-TV was proving a tough barrier to an aggressive roll-out of digital cable services.
Bilotti said cable companies in general have done a good job in ramping-up digital to face down the satcaster challenge.
Jockeying for position
“The digital roll-out acceleration seen to date positions the cable operators to successfully deal with (satellite) competition,” he wrote in a note to investors. “Looking ahead to the next two quarters, the (sat) industry is clearly aware of the threat posted by the cable industry and is increasing marketing expenditures.”
The analyst calculated that the cost of reaching each new sub is about the same for cablers and satcasters at $600-$700.
Charter’s Nasdaq-listed shares neared a 52-week closing high when they climbed $2.19, or 16%, to $16.06 by day’s end. The stock had soared as much as 23% in midday trading.
No. 4 in size among U.S. cable-system operators, Charter is controlled by billionaire financier Paul Allen. The St. Louis-based company had 375,000 digital subs among 6.2 million overall by June 30.
Bilotti, who rates the stock a “strong buy,” now estimates Charter could reach 799,000 digital-TV customers by the end of 2000, roughly 30% more than previously projected. Industrywide, he projects 8.4 million and 13.9 million digital subscribers by the end of 2000 and 2001, respectively.
Meanwhile, investors also rallied to other cable stocks on the news. The Morgan Stanley report noted signs of improved relationships between programmers and cable-system operators industrywide, with Bilotti citing a “less confrontational atmosphere (that) should positively impact margins going forward.”
Adelphia soared $3.25, or 10%, to $34.25; Comcast was up $2.31, or 6.5%, to $38.19; Cablevison climbed $1.88, or 2.7%, to $70.25; and Cox Communications rose 50 cents, or 1.4%, to $37.50.
Phone giant AT&T, with large cable systems formerly operated by Tele-Communications and MediaOne, jumped 47 cents, or 1.3%, to $37. And diversified conglom Time Warner, which also has massive cable holdings, rose 63 cents, or 0.7%, to $80.88.
Bilotti said all cable operators except AT&T and Adelphia met or beat expectations for second-quarter digital installations. He still credited Adelphia for making improvements in its cash flow, while noting AT&T was also a laggard in its roll-out of cable-modem services.
Among other analysts, Credit Suisse First Boston’s Laura Martin said she’s been bullish on the cable sector for some time, specifically because of the new digital and broadband services being rolled out.
“We think cable companies represent a bridge from the old world to the new economy, and so have access to new revenue streams,” Martin said.
The blue-chip Dow Jones Industrials Average increased 47.25, or less than 1%, at 11,055.64 on Thursday. The most broadly structured index, the Standard & Poor’s 500, managed a 1% climb of 16.22 at 1,499.07. And the technology-laden Nasdaq rose 79.67, or 2%, to 3,940.87.