On Jan 29, 2014, we upgraded our recommendation on
Time Warner Cable Inc.
) to Outperform from Neutral.
Why the Upgrade?
Lately, Time Warner Cable has become an easy acquisition target
for most cable companies in the U.S. due to its persistent loss
of video subscribers. Nevertheless, the acquisitions of NewWave,
NeviSite and Insight are likely to drive its top line going
forward. Moreover, growing demand in the Residential high-speed
Internet and Business services segments is expected to act as
tailwinds for the company going forward.
The Business Services segment has become a major growth driver
for Time Warner Cable. In the reported quarter, Commercial
revenues were $594 million, up 20.5% year over year. All segments
across the board - commercial data, business class phone, and
mobile tower backhaul - are contributing significantly to the
company. The company intends to double its Business Service
revenues within 4 to 5 years.
The proposed acquisition of DukeNet will further strengthen the
Business Service division of Time Warner Cable. In the reported
quarter, Time Warner Cable launched several innovative products
and services. As a result, the average monthly revenue per user
rose 2% to $105.
Moreover, availability of the cloud-based user guide for set-top
boxes and additional TVEverywhere features for iOS, Android
platforms and Roku TV streaming boxes, Samsung Smart TV and Xbox
devices will drive subscriber growth in the upcoming quarters.
Furthermore, renewal of distribution agreement with Discovery
Communications Inc., free Samsung tablets (powered with TWC TV
apps) offered to customers coupled with the promotion of bundled
packages at attractive rates are expected to counter subscriber
loss going forward.
Currently, Time Warner Cable has a Zacks Rank #3 (Hold).
Stocks That Warrant a Look
Other stocks that are worth considering within this sector are
BT Group plc
Level 3 Communications, Inc.
). BT Group currently has a Zacks Rank #1 (Strong Buy), while
both Netflix and Level 3 carry a Zacks Rank #2 (Buy).
BT GRP PLC-ADR (BT): Free Stock Analysis
LEVEL 3 COMM (LVLT): Free Stock Analysis
NETFLIX INC (NFLX): Free Stock Analysis
TIME WARNER CAB (TWC): Free Stock Analysis
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