We reiterate our long-term Neutral recommendation on
Time Warner Cable Inc.
) following its mixed financial results for the second quarter of
2013. Net income surpassed the Zacks Consensus Estimate but
revenues fell below the same. The company currently has a Zacks
Rank #3 (Hold). We believe Time Warner Cable is currently fairly
Why Kept at Neutral?
We view the change in Time Warner Cable's business model as
positive. Management has decided to adopt a four edged approach:
(1) rebrand itself as a major broadband service provider for
residential customers, (2) aggressively penetrate the commercial
business segment, (3) change in marketing strategy like product
segmentation and (4) significantly enhance shareholders' wealth,
such as systematic share repurchase and increase in dividend
rate. The board of directors has decided to raise its share
repurchase authorization to $4 billion immediately.
Time Warner Cable generated significant subscriber growth for
its broadband and digital phone services. In the second quarter
of 2013, Residential Services revenues increased 0.3% despite
huge video customer loss. This was mainly attributable to 12.5%
growth of high-speed broadband services (Internet data) and 13.3%
rise in Other revenues.
On the other hand, continued loss of video customers is a
concern. Cable TV operators are gradually losing their hold in
the U.S. pay-TV market. Time Warner Cable lost 191,000
residential video subscribers in the second quarter of 2013. Nine
major cable TV operators, including Time Warner Cable and
), lost a whopping 555,000 video subscribers in the same
timeframe. Whereas, telecom giants,
Verizon Communications Inc.
), jointly gained 373,000 subscribers in the same quarter.
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