Miller Tabak & Co. media analyst David Joyce raised his rating on competitive video and phone provider Knology Inc. to “buy” from “neutral,” citing potential for incremental revenue and operating cash-flow growth.
In a report, Joyce said his five-year forecast for improvements in operating cash-flow margins at Knology was significantly lower than the company’s own prediction of low-to-mid-30% growth in the next few years. After meetings with Knology CEO Rodger Johnson and chief financial officer Todd Holt, Joyce revised his model, emerging from the meetings with greater confidence in Knology’s focus on core Southeastern markets, its strategy not to compete on price and management’s ability to control expenses.
The potential for expense controls, offsetting less manageable costs like programming, were the bigger story, according to Joyce’s report. As a result, he boosted his 2007 operating cash-flow margin forecast by 100 basis points (0.1%) to 26.4% and his 2011 estimate by 270 basis points (0.27%) to 29.5%. That’s still below company estimates of low-to-mid 30% margin growth, but Joyce’s forecast leaves potential for Knology to outperform.
Joyce, who increased his 12-month price target on the stock to $12 from $11, also raised his 2007 revenue estimate for the company by 10%, to $284 million, and his operating cash-flow estimate by 15%, to $75 million.