Sub-Loss Forecast Better For Comcast Than TWC - Multichannel

Sub-Loss Forecast Better For Comcast Than TWC

CBS Blackout Could Hit No. 2 MSO Hard
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Cable operators are slated to release third-quarter results next week, and analysts expect another strong period from top MSO Comcast as they brace for some possible bad news from the No. 2 operator, Time Warner Cable.

Comcast, which has been riding high on strong results for the past 10 quarters, is expected to turn in another three-month period of improved basic-subscriber losses.

Time Warner Cable, coming off a month-long blackout of CBS owned-and-operated stations in New York, Los Angeles and Dallas, could be headed for heavy subscriber losses.

Morgan Stanley’s Ben Swinburne, Credit Suisse’s Michael Senno and Pivotal Research Group principal and senior media and communications analyst Jeff Wlodarczak all anticipate another strong quarter for Comcast, with basic-video losses tallying about 100,000 for the period, an improvement over last year’s loss of 117,000 video customers in the quarter.

In the second quarter, Comcast surprised analysts with better-than-expected results — it reduced video-customer losses by about 10% and grew cable revenue and cash flow at a better than 6% pace — which helped spur optimism for the coming period.

Comcast is expected to be the first MSO to release results on Oct. 30. “Continued operating strength and solid subscriber and financial metrics should provide an ongoing catalyst” for Comcast on the cable side, Senno wrote.

Strong sentiment is not shared for Time Warner Cable. After a string of quarters with underperforming operating results and the added pressure of the CBS blackout, some analysts are anticipating the worst.

In a research note, Wlodarczak nearly doubled his video subscriber- loss estimates for TWC from 160,000 to 300,000, citing the CBS blackout and a fear TWC will not be able to re-sign a large chunk of the roughly 1.4 million customers that were scheduled to roll off aggressive promotions in the period.

“Paradoxically, we believe another messy quarterly result, relative to what we believe will be solid Charter and Comcast 3Q results, will likely add fuel to the fire for a Charter bid for the company,” Wlodarczak wrote.

Charter, which in June touched off a frenzy of consolidation talk in the sector after its informal overtures toward Time Warner Cable were rejected, is still believed by most analysts to be geared up for a deal.

In the meantime, some analysts are expecting the third quarter to be another strong quarter for the midmarket MSO.

All three analysts expect Charter to report strong revenue and cash-flow growth in the period (4% to 7%), with Wlodarczak adding that the key will be the MSO’s ability to show accelerated cash-f low growth in the period, a sign the company is successfully migrating customer off promotions and into full-service offerings.

Wlodarczak said better- than-expected RGU growth in the period could temporarily impede cash-flow growth. Wlodarczak predicted that third-quarter cash-flow growth would be about 4%, rising to about 6% in the fourth quarter and above that mark moving into the first half of next year.

Charter managed to put a dent in basic-video losses in the second quarter — it lost 48,000 video customers in the period, compared to a loss of 66,000 in the prior year — and most analysts are expecting that trend to continue.

Wlodarczak, Senno and Swinburne said they expect Charter to have shed 30,000 to 50,000 video customers in the period — an improvement over the 73,000 video subscribers lost in the same period in 2012.

While analysts are expecting Charter to begin to realize some of its vast potential, they are predicting that past success will continue to haunt Cablevision Systems.

LOSSES FOR CABLEVISION

Cablevision has struggled in the past several quarters to squeeze growth out of its industry-leading penetration rates.

After losing 5,000 video customers in the first quarter and another 20,000 in the second, the analysts are predicting the same for Cablevision for the third quarter. Wlodarczak estimated that Cablevision will lose about 10,000 video customers in the period. Swinburne predicted a loss of 22,000 subscribers.

In a recent research note, Swinburne said most of the upside in Cablevision’s stock price is on consolidation hopes, which he and other analysts believe is less likely with each passing day.

A lack of top-line revenue growth, double-digit programming costs increases and high leverage (at five times forward-looking cash flow) “leave Cablevision with the least attractive risk/reward in [the] group,” Swinburne wrote.

TAKEAWAY

Analysts are bullish on Comcast and bearish on Time Warner Cable as third-quarter MSO earnings season commences.

Cable operators are slated to release third-quarter results next week, and analysts expect another strong period from top MSO Comcast as they brace for some possible bad news from the No. 2 operator, Time Warner Cable.

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