Moffett Research, the new cable and satellite research firm headed by long-time cable analyst Craig Moffett, initiated coverage on the cable and satellite sector late Monday, warning that the strong growth in cable stocks over the past two years may be headed for a wall.
Moffett Research, headed by former Sanford Bernstein cable and satellite analyst Craig Moffett, officially put out its shingle in May. At that time the firm said it would initiate coverage of the sector in June.
In a 135-page report issued late Monday entitled “Cable and Satellite: The Next Ten Years,” senior research analyst Craig Moffett touched on several issues impacting the industry, adding that given the stocks’ performance over the last 18 months – MSO shares were up a collective 40% in 2012 – cable bulls now outnumber the bears. But that may not last for long. In the report, Moffett noted that although financial growth is expected to be strong for most of the sector for the foreseeable future, the upside may be drained from most of the MSO stocks, save Charter Communications, which he rated a “buy” with a $131 per share 12-month target.
“The cable bull case is now consensus, and we no longer see material upside to intrinsic value for the sector,” Moffett wrote.
Charter was the lone “buy” in the MSO sector, mainly because of its low product penetration rates and a recent investment by Liberty Media which alludes to a future consolidation play. Moffett rated Comcast and Time Warner Cable “Neutral,” setting 12 month price targets of $44 and $101, respectively.
Moffett was down most on Cablevision, calling the Bethpage, N.Y. MSO “overvalued” and giving it a “Sell” rating and a $10 price 12-month price target.
Satellite stocks like DirecTV (Neutral, $66) and Dish Network (Neutral, $33) are more idiosyncratic, according to Moffett. The firm wrote that while DirecTV was one of its top picks a year ago, today it is at best marginally undervalued. And Dish Network, which has grabbed headlines with its wireless spectrum buys and its $25.5 billion unsolicited offer to purchase Sprint Nextel, “perversely, has now become an option on a hoped-for failure of its wireless ambitions.”
Moffett added that Dish’s recent bid for Clearwire seems like more of a ploy to annoy Sprint’s original suitor SoftBank, to agree to a three-way venture.
“That’s a high stakes game,” Moffett wrote. “Some scenarios could eventually lead to Dish being a seller of its spectrum (good) or even to a merger with DirecTV (better). But all that looks far down the road and bad outcomes are equally possible.”
The initiation helped lift Charter stock more than 2% ($2.34 each) in early trading Tuesday to $113.86, while Comcast rose 1% (38 cents) to $40.84, Cablevision rose 1.3% (19 cents) to $15.24 and Time Warner Cable was essentially flat, up 3 cents each to $95.20 per share.
Satellite stocks were up minimally – Dish rose 0.2% (7 cents) to $38.71 in early trading while DirecTV was up 0.2% (11 cents) to $61.77 per share.