Atlanta -- A panel of cable and satellite analysts may have not been able to quite agree on a single reason for the malaise in cable stocks, but they could find some consensus on what might bring them back -- strong fundamental growth from the largest cable operator in the nation, Comcast Corp.
“If Comcast moves, everybody else, all of the levered players are going to move with them,” Wachovia Capital Partners cable and satellite analyst Jeff Wlodarczak said. Wlodarczak added that investors fear that because Comcast has been slow to roll out new products -- it was one of the last large cable operators to roll out voice services -- the company might be fundamentally flawed. Impressive second- or third-quarter growth, especially in voice additions, could quell those fears.
Sanford C. Bernstein & Co. Inc. cable and satellite analyst Craig Moffett agreed.
“Comcast is going to have to be the linchpin,” Moffett said, adding that there are other factors that could goose cable stock.
“The real catalyst for the stocks has to be about the marginal return on capital,” Moffett said. “Empirically, you can demonstrate that marginal returns on capital are attractive now, but the market has a view that marginal returns on capital are going to fall off the table.”
UBS Warburg LLC cable debt and equity analyst Aryeh Bourkoff said the cable industry is already showing strong financial and subscriber growth, but a few things have to take place before the stocks start to rise again: the completion of the sale of Adelphia Communications Corp. to Time Warner Inc. and Comcast; the initial public offering of Time Warner Cable; and a rather large share buyback from Comcast.
“If Comcast would take their leverage from 2.5 to 3.5 times, that takes their buyback from $5.4 billion to over $14 billion,” Bourkoff said. “If they could do that in a tender offer, I think that’s equivalent to the Microsoft [Corp.] catalyst of 1997.”
Pali Capital media analyst Richard Greenfield had another solution -- mirror Cablevision Systems Corp.’s aggressive pricing and rollout of the triple-play bundle.
“The last thing I would do if I was Comcast would be to raise the buyback,” Greenfield said. “I’d be far more aggressive in other ways. I’d love to see more companies in the industry embrace what Cablevision has done and to a degree what Insight [Communications Co. Inc.] has done: simple is better. I think the marketing strategy has to be far more aggressive for this industry and not worry about your stock prices in the near term, not worry what investors think.”