Long-time media analyst Bryan Kraft initiated coverage of the cable and satellite sector with his new bosses at Banc of America Securities last week, slapping a “buy” rating on Time Warner Cable, Comcast, Liberty Entertainment, Dish Network and DirecTV Group.
Kraft, who had covered cable at Credit Suisse Group before joining B of A in July, stayed neutral on Mediacom Communications and Charter Communications, the two operators with the largest secondary-market footprint.
Kraft expects continued fundamental improvement at Mediacom for the rest of the year, but is leery of potential retransmission-consent fights with broadcasters. He noted Mediacom has had a tough time in past retransmission negotiations.
“If channels go dark again, we could see subscriber losses, slower RGU growth, and higher [operating expenses] on a temporary basis, and higher programming costs on a more permanent basis, thus affecting margins,” Kraft wrote.
With Charter, the downside was leverage. With $20 billion in debt, Charter leads the cable pack in that category.
Kraft's top picks are Liberty Entertainment, Time Warner Cable and DirecTV.
Despite a recent pounding, cable's resilience is likely to show through as third-quarter results are released, Kraft said. “We see an opportunity to make money in absolute terms and to outperform the market by investing in the sector.