Pali Analyst: Time Warner Cable a Haven for Deal-Averse Investors


Pali Research media analyst Richard Greenfield raised his rating on Time Warner Cable to “neutral” from “sell” last week, observing that investors are beginning to move money from Comcast to the second-largest MSO for one simple reason: TWC isn’t trying to make a big acquisition.

In a research report last Tuesday, Greenfield — who has been critical of Comcast’s reported efforts to buy NBC Universal — wrote that TWC is attracting “significant capital flows from Comcast investors who fear (correctly, given what Comcast is trying to do now with NBCU) the company will squander its free cash flow.”

Comcast stock dipped about 8.5% ($1.44) between Oct. 1, when reports appeared it was negotiating to purchase a controlling interest in NBCU, and Oct. 19.

By contrast, TWC stock has fallen about 3% ($1.29), to $41.80, in that period.

Greenfield said Time Warner Cable is “telling investors exactly what they want to hear,” primarily that no major acquisitions are on the horizon and free cash flow ($1.8 billion last year) will be used to pay down debt.

Greenfield had downgraded the stock to “sell” in July, fearing a big slowdown in revenue generating units, slower cash-flow growth and higher interest expenses would have a negative impact on valuation.

That fear, he wrote, has been offset by strong free-cash-flow generation. He upped his free-cash-flow estimates for 2010 to about $1.3 billion, from a previous estimate of $1.1 billion. His 2009 free-cash-flow estimate remained the same at $1.7 billion.