Cablevision Stock Stumbles on Investor Fears

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Cablevision Systems stock took one on the
chin last week not so much for what it has done in the past
three months, but for what investors fear it could do.

Fourth-quarter results at the Bethpage, N.Y.-based MSO
weren’t nearly as bad as some analysts expected — basicvideo
subscriber losses of 14,000 in the period were 22% better
than analysts’ consensus estimates of 18,000, and growth
in high-speed Internet and phone customers outpaced most
expectations. But the stock plunged 9.8% between Feb. 28 and
March 1, down $1.53 each to $14.11 per share, after CEO Jim
Dolan unveiled a plan that will require capital expenditures
to rise and cash-flow growth to flatten in 2012.

While the mere hint of rising capex typically sends cable
stocks southward, some analysts weren’t as concerned about
the lowered expectations as they were
that those expectations may not be low

“There seems to be a question as to
whether Cablevision can maintain flat
adjusted operating cash flow growth in
2012,” Wells Fargo media analyst Marci
Ryvicker wrote in a research report.

Couple that with uncertainty surrounding
top management — the company
sent signals that it was at least
postponing a search for a new chief operating
officer to replace Tom Rutledge,
who left abruptly in December to become
CEO of Charter Communications
(see Finance) — and analysts
see a growing line of
dark clouds beginning
to circle what once was
the top-performing company in all of cable.

“Cablevision’s fourth-quarter results
were surprisingly good … but their guidance
was unsurprisingly bad,” Sanford
Bernstein cable and satellite analyst Craig
Moffett wrote in a research note. “Taken together,
they illustrate neatly the bind that
the company faces.”

That bind is that Cablevision is a victim
of its own success, as its industry-high penetration
rates in virtually every subscriber
category has made growth hard to come by.
And even when it manages to squeeze out a
respectable growth quarter — high-speed
data customers rose by 20,300 and phone
customers increased by 30,500 in Q4 —
it suffers on the financial end. Organic
adjusted revenue grew just 0.9% in the
quarter, and adjusted operating cash flow
rose just 0.5% on an adjusted year-over-year
basis, according to Moffett.

Dolan took the bull by the horns
in a conference call with analysts
last week, sketching out a plan to
bring the company back to basiccustomer
stability and solidifying
himself as the point man for operations
“for the foreseeable future.”

“As far as a succession plan goes,
I am currently running the operations
… and will continue to do so for
the foreseeable future while we work
on improving our operations,” Dolan
said on the call last week.

In a research note released prior
to Cablevision’s earnings conference
call, ISI Group media analyst
Vijay Jayant wrote that he considered
the lack of a new COO “a negative and
a continued overhang on the stock.”

Meanwhile, Dolan is concentrating on steps to maintain
or increase Cablevision’s video-subscriber base — he
said the company is working on 18 separate initiatives to
improve its products and the overall customer experience.
While he didn’t go into detail, he said Cablevision will not
increase its subscriber rates this year, will roll out a nextday
install program for new customers by the end of the
first quarter, is hoping to launch a new electronic program
guide in the third quarter and is expanding the launch of its
remote-server digital video recorder.

“At its core, our business is strong,” Dolan said on the call.
“Our suite of products is in high demand, and we will work to
continue to grow these products to meet our customers’ evolving