Wells Fargo Securities analyst Marci Ryvicker upgraded the entire cable and satellite sector to “overweight” last week, adding that the recent run-up in the sector’s stocks is based on strong fundamental growth.
In her report, Ryvicker noted that cable and satellite stocks rose 20% and 16%, respectively, since the end of the second quarter. She said she believes Time Warner Cable has the most potential upside for the rest of the year, followed by Comcast and Cablevision Systems. As a result, Ryvicker upgraded TWC to “outperform” — she did the same for Comcast earlier in the year.
Ryvicker increased her valuation range for TWC to between $50 and $54 per share (up from her previous estimate of $30 to $33 for four reasons: one, TWC has the most operating leverage given its pure-play status as an MSO and therefore “investors should get the biggest bang for their buck should fundamentals improve even slightly”; two, with the recent realignment of its sales force, TWC has the most near-term upside in its business telephony segment; three, there is no M&A overhang on the shares; and four, there is little uncertainty about what TWC will do with its cash — management has voiced an intention to provide a dividend in the first half of 2010.
Ryvicker believes that Comcast and Dish Network are the most undervalued on a fundamental basis and that there is room for multiple expansion across the sector, even though it has a slower growth profile.