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Cable Stocks - The
Kings of the Couch Potatoes
Digital cable.
Video on demand. Cable telephony. High-speed Net access.
Interactive programming guides and interactive TV.
Combine
this bevy of next-generation services with reliable monthly
cable TV subscriptions and one can see why Wall St. is head
over heels for supposedly "recession proof" cable stocks in
the very "unpredictable" current tech sector.
Now that
many fast growing dot coms and Net software companies have
imploded, the consistent 10-12 percent annual sales and cash
flow growth of most cable operators look downright appealing.
Words like "consistency" and "reliability" look quite
attractive once again.
While most
tech blue chips are still down 50-60 percent from their old
highs, cable stocks have held up incredibly well during the
NASDAQ meltdown. In fact, many large cable names are now
trading near their 52-week highs.
So do
cable stocks have further to run still or have they already
run out of gas? For me at least, it's an interesting question
that definitely begs further investigation.
Thus, I
placed cable giants Comcast, Cox and
Charter under my analytical microscope for the week to
see what I could find out. Let's take a closer look.
Cox
Communications [COX]
Atlanta
based Cox Communications is currently the nation's fifth
largest cable operator with over 6.2 million customers and is
a majority owned subsidiary of media giant Cox Enterprises.
After removing unusual items, Cox recently reported a first
quarter loss of $125 million or $.21 cents per share, compared
to earnings of $.30 cents during this same period last
year.
 While earnings declined for the
quarter, Cox's operating cash flow jumped nicely 10% to $358
million in the quarter. First quarter pro forma sales rose 12%
to $948 million during the period. In addition, Cox continues
to capture additional revenue streams, with the cable operator
adding 271,000 new digital cable, digital telephone or
broadband cable subscribers during the quarter.
More
importantly, Cox re-affirmed on its latest earnings conference
call that it still expects to post 2001 revenue growth of
14-16 percent and operating cash flow growth of 12-13 percent
for the year. At a recent price of $44 per share, though, Cox
is already trading within only a few points of its current
52-week high. Cox shares need to dip further before I'd start
looking closer.
Charter
Communications [CHTR]
Formed
through a series of frenzied deal making from Microsoft
co-founder Paul Allen, Charter is now the fourth largest
operator of cable systems in the U.S. With over 6.4 million
customers, Charter now has customers in over four states. The
company has been extremely aggressive in offering
next-generation digital services.
Charter
recently reported first quarter pro forma sales that rose 14%
to $873 million with operating cash flow surging almost 10% to
$388 million during the same period. Charter now expects to
have 2 million digital cable customers and between
550,000-600,000 broadband cable customers by the end of 2001.
Upon the close of some pending deals, Charter's customer base
should grow to over 7 million in the next few
months.
Much like
Cox, Charter used its recent conference call to re-affirm its
existing guidance for 2001. Operating cash flow is still
expected to grow 12-14 percent with annual sales growth of
14-16 percent. Charter shares would look particularly
attractive to me right now except for the fact that the
company currently carries $13.7 billion still in long-term
debt and that Paul Allen has not yet proven to be a savvy
operator.
Comcast
Corporation [CMCSK]
Unlike Cox
and Charter, in addition to owning cable systems, Comcast is
also the majority owner of electronic retailer QVC, a variety
of cable TV channels and sports teams like the Philadelphia
76ers. On the cable side, Comcast is currently the third
largest cable operator in the U.S. with over 8.4 million
customers.
Earlier
this week, the company reported impressive first quarter
results with consolidated revenue growing 13% to nearly $2.2
billion and operating cash flow rising 9% to $640 million for
the period. The cable side of Comcast continues to look strong
with sales rising almost 9% during the period. Comcast now has
over 1.5 million digital cable customers.
Comcast
has also not backed off of its sales and earnings guidance for
2001. The firm expects to see revenue growth of between 10-12
percent for the year with operating cash flow rising 12-13
percent (up from previous guidance of 10-11 percent). While
Comcast is already trading near its 52-week high at a recent
price of $42, this looks like one well-run cable name with
more room to run still.
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