Analysts: Cable stock fears are overblown

Group finds deterioration in revs per subscriber unlikely

Cable stocks are getting a bum rap on Wall Street, Prudential Equity Group said Tuesday.

Leading cable stocks Comcast, Cox and Cablevision have seen their shares fall by nearly 20% this year, as investors got spooked that deal-hungry cable ops might pursue profit-dampening acquisitions just as they were starting to generate substantial free cash flow. They also fear an impending price war with telcos for high-speed Internet services.

Both fears are overstated, according to Prudential Equity Group.

Based on the current stock prices, the market is expecting a drastic deterioration in revenue per subscriber that seems unlikely to occur, Pru concluded Tuesday.

In fact, to justify Comcast’s current share price, Pru reckons average revenue per customer would have to fall nearly 60% over the next 10 years.

And when market giant Comcast announces its second-quarter financial results this morning, firm is expected to announce plans to increase its current $2 billion stock buyback plans in a bid to boost the value of its shares. Company’s recent asset-share swap with Liberty Media will give it an extra $545 million in cash that could be used to buy back stock.

A $2.5 billion buyback is equal to around 4% of its share base. But analysts reckon Comcast could ultimately afford to buy back as much as 15% of its outstanding stock.

In a note Tuesday, bank reiterated its confidence in the sector overall and upgraded Comcast in particular to “overweight” from neutral.

Bank said that while investors were right to weigh concerns that cablers might pursue acquisitions or the prospect of rising interest rates, the current climate overstates the threat from satellite or a high-speed Internet price war with the telcos.

Telcos SBC, Verizon and Bell South have all discussed plans to roll out their own video services via fiber or as part of an alliance with EchoStar and/or DirecTV. But Prudential said these alliances did not pose an effective substitute to cable’s integrated triple-play.

Even predictions that cable companies might drastically — and unnecessarily — slash prices may be premature, pundits say. Cablevision recently offered up a $90 package of video, voice and telephony, but for a very restricted promotion.

With interest rates expected to rise next year (which raises the financial return required by public equities), Pru nevertheless reduced its price target on Comcast from $43 to $39. Prudential maintained its “underweight” rating on Cablevision, however, noting concerns about management’s ability to pull off the Rainbow DBS spinoff.

Comcast shares closed up 2.2% Tuesday at $28.74. Cablevision shares were up 1.3% to $18.29.

More TV


    SAG-AFTRA Ends Long Strike Against Ad Agency Bartle Bogle Hegarty

    SAG-AFTRA has ended its 10-month strike against Bartle Bogle Hegarty after the advertising agency agreed to sign the union’s new commercials contract. The union instructed its 160,000 members in September not to accept any work for BBH, which had been signed to SAG-AFTRA’s commercials contracts since 1999. The strike came two weeks after BBH publicly [...]

  • Brazilian President Jair Bolosnaro attends the

    Bolsonaro Threatens Brazil’s Central Film Fund with Censorship or Closure

    In typical shoot-from-the-hip remarks, Brazil’s far-right president Jair Bolsonaro has declared that Ancine, Brazil’s powerful state-backed federal film agency, should accept “filters”or face closure. “If it can’t have a filter, we’ll close Ancine, or privatize it,” Bolsonaro added, attacking Ancine, which plows some $300 million a year into Brazil’s film and TV industries, for supporting [...]

  • Variety Cord Cutting Placeholder Cable

    CBS Stations Go Dark on AT&T's DirecTV, U-verse Platforms Amid Contract Battle

    CBS’ 28 O&O stations are going dark for about 6.6 million subscribers of AT&T’s DirecTV and U-verse platforms as the Eye and AT&T battle over a new retransmission consent contract. The blackout affects CBS and CW-affiliated stations in 14 major markets including New York, Los Angeles and Chicago. Also off the air are the CBS [...]

  • Orlando Bloom Comic Con Immigrant San

    Orlando Bloom Claims San Diego Mayor Ran From Comic-Con Exhibit Featuring Immigrant Characters

    Did an immigration storyline cause Republican San Diego Mayor Kevin Faulconer to run out of Amazon Prime Video’s Comic-Con activation this week? According to “Carnival Row” star Orlando Bloom, that’s exactly what happened. At Amazon’s “Carnival Row” panel, Bloom told the audience that Faulconer stopped by the Prime Video activation and chose the “Carnival Row” [...]

  • 'Game of Thrones' Cast Calls Final

    'Game of Thrones' Cast Calls Final Season Backlash 'Media-Led Hate Campaign'

    What is life like now after “Game of Thrones?” That’s the question that fans have been asking themselves and that cast members had to answer at the show’s final Comic-Con panel. But first, Conleth Hill, Nikolaj Coster-Waldau and several others cleared the air and addressed the perceived negative response to the final season. “I don’t [...]

  • SDCC Roundup: AMC Drops 'The Walking

    SDCC TV News Roundup: AMC Releases 'The Walking Dead' Season 10 Trailer (Watch)

    San Diego Comic-Con has become a hotbed of entertainment news in recent years, especially for the television industry. In today’s SDCC TV news roundup, AMC dropped a trailer for the 10th season of “The Walking Dead” and FX released a first look at “Mayans MC” Season 2. FIRST LOOKS AMC debuted the trailer for Season [...]

More From Our Brands

Access exclusive content