Cable Operators

A Bounceback Year

1/03/2011 12:01 AM Eastern

Barring a year-end meltdown,
cable stocks continued to rise in 2010, as
spinoffs, dividends, buybacks and good old fashioned
performance fueled double-digit
percentage increases at top MSOs and programmers.

With about a week left in the year — and no final tally by press time — the MSO sector was up
about 37.5%, spurred by a 89% increase at Mediacom
Communications from $4.47 per share to
$8.46 each; a 57.9% ($23.97 per share) increase at
Time Warner Cable, from $41.39 to $65.36; and
a 58% ($12.43 per share) rise at Cablevision Systems.
Th at is in addition to an increase of more
than 40% for the sector in 2009, after a dismal,
recession-fueled decline in 2008.

Shares in Comcast, which was expected to
close its $30 billion NBC Universal joint-venture
deal in early January, were up 31.6% ($5.32
each) as of Dec. 23 to $22.18. The largest U.S.
MSO’s stock has risen steadily in the closing
weeks of the year — it was up more than 20%
in the past three months — so it is reasonable
to assume its price could climb even higher as
the end of the year approaches.

For the cable-operator stocks, strong performance,
coupled with the efforts to return
value to shareholders, appeared to be the
biggest catalysts. Time Warner Cable were
boosted by a robust $1.60-per-share annual
dividend initiated earlier this year (at a 3.7%
yield, the highest in the industry) and an authorization
to buy back $4 billion of its shares
over time.

Cablevision was fueled
once again by its industryleading
financial performance,
as well as the spinoff
of its Madison Square Garden
unit in February and its plans
to spin off its Rainbow Media
Holdings programming arm
later this year.

Miller Tabak media analyst
David Joyce said that another
development that helped
MSO stocks is that fears of
onerous government legislation, such as reclassification of broadband service under Title
II and network neutrality, as well as new
competitive threats from over-the-top video
providers, which dragged on the sector in the
first half of the year, proved to be unfounded.

Mediacom’s meteoric rise was fueled by
chairman and CEO Rocco Commisso’s offer
to buy the remaining shares in the MSO he
doesn’t already own for $8.75 each. That deal
is expected to be completed in the first half
of 2011.

Charter Communications re-entered the
NASDAQ stock exchange on Sept. 14 and
stayed relatively steady for the year.

On the programming side, a return to advertising-
sales growth translated
into higher stock prices.
Overall, the sector increased
27.1%, led by Viacom (up 45%
or $14.17 per share); Discovery
Communications (up 37.4%
or $11.48 per share); and The
Walt Disney Co. (up 17%, or
$5.47 each).

Joyce said a strong advertising
market and efforts by programmers
to get paid for their
content, instead of airing it on
the Internet for free, have helped the stocks.

While Joyce doesn’t expect 2011 to bring the
same results — Cablevision is his top pick for
the year, with a $44 price target — he does expect
the upward trend, especially in the MSO
stocks, to continue.

“We generally expect an up year [in 2011],
with 15% to 25% gains in the media sector,”
Joyce said.

September
October