BTN, Rivals Drag on Mediacom9/05/2008 8:00 PM Eastern
Pali Research analyst Rich Greenfield lowered his rating on Mediacom Communications last week to “neutral” from “buy,” citing increased expectations after recently raising guidance and rising programming costs.
In a report, Greenfield wrote that his earlier “buy” recommendation for the stock was based on Mediacom significantly outperforming its earnings and revenue-growth guidance. While that looked achievable when Mediacom expected 7% to 8% cash flow growth for the year, its new targets — announced after second-quarter results — of between 8.5% and 9.5% cash-flow growth for the year are in line with Greenfield's expectations.
On the programming front, Greenfield estimated that Mediacom's recent deal to carry the Big Ten Network was less favorable than its peers — possibly approaching $1 per subscriber, per month for the 600,000 customers that reside within core Big Ten markets.
“With the top U.S. cable operators agreeing to BTN carriage, we believe Mediacom was left with little choice but to acquiesce to BTN demands,” Greenfield wrote.
Greenfield also worried about increased marketing spend by rival Dish Network in the second half of the year — he wrote that it looked as if Dish advertising, especially for its Turbo HD package, was more visible in the third quarter — which could be a problem for the cable operator if customers are persuaded to switch.
Greenfield wrote that while Mediacom may still beat his cash flow growth estimates for the year, “we believe the aforementioned factors limit the extent of the upside.”