We reiterate our long-term Neutral recommendation on
Time Warner Cable Inc.
) following its mixed financial results for the third quarter of
2012. The company currently enjoys a short-term Zacks #3 Rank
(Hold) rating on the stock.
The company demonstrated an impressive annualized progress
primarily attributable to: (1) new acquisitions of NewWave,
NeviSite, and Insight, which have enhanced the company's
financials, owing to which the growth rate of revenue exceeds the
growth rate of operating costs (2) steadily growing demands for
residential high-speed Internet services (3) exceptionally solid
performance by its Business Services segment, and (4) growing
Consolidated ARPU is also increasing year over year. Time
Warner Cable is transforming itself as a leading broadband
service provider with formidable video distribution network in
its offerings. Free cash flow also remains healthy. Meanwhile,
the stock price has soared nearly 54% in the last year. Business
segment became a major growth driver for Time Warner Cable. Time
Warner Cable has undertaken a massive "Ethernet Everywhere"
strategy and is boosting cloud computing services.
Nevertheless, cable operators are facing fierce competition
from telecom service providers like
Verizon Communications Inc.
), which are quickly gaining market share from cable MSOs by
offering fiber-based TV and other high-speed broadband services
to their subscribers.
Online video streaming service providers, such as
), Hulu.com, YouTube etc., have become a severe threat to the
cable TV operators. These online videos provide an extremely
cheaper source of TV programming unless the customer is very
eager to see real time programs like sports events. This business
model gains momentum, especially when the economic headwind still
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