Pali Research media analyst Richard Greenfield raised his rating on Mediacom Communications to "buy" from "neutral" and his 12-month price target to $5 per share, stating that the company's expected 2009 free cash flow generation "is too compelling to ignore."
Mediacom reported strong fourth-quarter results on Wednesday, adding that it expected free cash flow per share to increase ten-fold this year to $1 per share from less than 10 cents per share in 2008. The main driver of the
increase -- a dramatic (20% to 25%) reduction in capital expenditures expected in 2009.
In a research report, Greenfield estimated that Mediacom could generate more than $60 million in free cash flow in 2009, or about 92 cents per share. That is slightly below the $67 million that Mediacom says it expects to generate, but the analyst wrote that even his conservative estimate "makes for a very attractive valuation."
Greenfield also was bullish on Mediacom's competitive position relative to telco video products-- it has no exposure to Verizon Communications' FiOS product and minimal exposure to AT&T's U-Verse offering. In addition, despite its secondary market footprint, Mediacom's markets have some of the lowest unemployment rates in the country.
"We believe this will result in Mediacom outperforming many of its larger cable operator peers in 2009," Greenfield wrote.
Mediacom shares closed at $4.12 each, up 4.8% or 19 cents per share on Feb. 25.