Voice Makes Cablevision A Buy

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Jefferies & Co. cable analyst Robert Routh maintained his “buy” rating and $26 per-share-price target on Cablevision Systems Corp., after the Bethpage, N.Y.-headquartered cable operator said it had crossed the 1-million-subscriber threshold for its voice-over-Internet Protocol telephony service.

With 1 million customers, voice penetration is at 33% of basic subscribers and about half of its cable-modem customers, Routh wrote in a research report, showing that concerns over the threat of competing video, voice and data service from Verizon Communications Inc. could be overblown.

Verizon has been especially aggressive in Cablevision territories with its FiOS, voice, video and data service, as it has begun rolling out the product in several communities in Long Island and Westchester County in New York. While Cablevision has downplayed the significance of the Verizon threat in the past, Routh wrote that the company’s performance appears to back up those claims.

Routh wrote that the success of the voice product has exceeded even management’s expectations and that the product has had an impact on reducing churn and driving growth at other services like digital cable. The success of Optimum Voice has also positioned Cablevision to pursue a business telephony service, which will likely result in increased average monthly revenue per unit. That should lead to better financial results.

Since launching Optimum Voice more than two years ago, Cablevision has added roughly 3 million revenue generating units.

Cablevision is expected to release its second quarter results on Aug. 8. In his note, Routh recommended buying the stock “ahead of the quarter.”