Bernstein Raises Targets For Comcast, Time Warner Cable
Analyst Says Stocks of Top Two MSOs Remain Undervalued
Todd Spangler -- Multichannel News, 8/27/2009 4:05:10 PM
Sanford Bernstein senior analyst Craig Moffett Thursday raised his price targets for Comcast and Time Warner Cable shares, writing in a research note that the cable stocks are undervalued especially relative to those of the major telephone companies.
"In short, we think cable risk is to the upside; telco risk is to the downside," Moffett wrote, noting that the "valuation gap" between the two sectors "appears irrationally large."
Moffett revised his price target for Time Warner Cable to $60, from $47 previously, and for Comcast to $21 from $20. The larger increase for TWC "primarily reflects TWC's more concentrated capital structure," he wrote. He cited the operators' faster-than-expected free cash flow growth, debt retirement and modestly faster-than-expected growth in earnings before interest, taxes, depreciation and amortization.
Bernstein's target multiple for cable stocks is still 6.0 times EBITDA, "still somewhat below warranted valuations," Moffett wrote.
In afternoon trading, Comcast's stock was trading at $14.74 per share, up 1.8%, while Time Warner Cable was at $36.88, up 2.5%.
According to Moffett's analysis, the valuations of AT&T and Verizon suggest investors expect the telcos' current negative EBITDA growth will reverse course, while the two big cable companies -- which continue to grow at about 4% annually -- will begin declining.
"Within the cable group... we continue to strongly prefer Time Warner Cable on the basis of a more concentrated equity structure and greater clarity about cash distribution," Moffett said.
Moffett previously raised price targets for both MSOs in May, citing lower capital intensity and the industry's rollout of DOCSIS 3.0 as a competitive advantage.
Moffett maintained his "outperform" ratings for both Comcast and TWC, with AT&T at "market perform" and Verizon Communications rated "underperform."
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