Analyst: Integration Will Unlock TWC Growth

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Media analyst Jessica Reif Cohen initiated coverage of Time Warner Cable with a “buy” rating and a $45 per share 12-month price target, adding that a key factor in its growth will be the successful integration of its former Adelphia Communications systems.

Time Warner began trading on the New York Stock Exchange on March 1, opening at $38.75 per share. The stock has since fallen, closing at $36.50 on March 14.

Time Warner acquired about 4 million subscribers from Adelphia in July as part of parent Time Warner Inc.'s joint purchase of the operator with Comcast for about $17.4 billion. While Time Warner Cable said integration of the former Adelphia systems is moving ahead smoothly, those properties lost about 50,000 customers in the fourth quarter.

Time Warner sees the Adelphia systems as a huge opportunity for growth — they have yet to roll out a telephone product and average monthly revenue per customers at those systems is $18 below the rest of Time Warner's systems.

In her report, Reif Cohen wrote that the Adelphia integration remains a “valuation linchpin,” and that stabilizing the acquired customer base and narrowing that $18 ARPU gap should be a top priority. She added that further upside rests in the rollout of voice and data services to the commercial market.

While some analysts have speculated that the new deal currency could allow Time Warner to begin an acquisition binge, Reif Cohen wrote that the company would take a disciplined approach, possibly swapping smaller non-strategic systems for tuck-in acquisitions.