With that opinion, coupled with a prediction that TWC's EBITDA will decline "at least 2.2%" this year as marketing spend increases, Pali Research analyst Richard Greenfield has downgraded the MSO's stock to Sell, arguing that Time Warner Cable's "fundamental mistake has been 'milking' ARPU for all it's worth" rather than taking the offensive early on and snapping up as many "triple-play" subscribers as it could before it was faced with the specter of Verizon Communications Inc. (NYSE: VZ) FiOS and AT&T Inc. (NYSE: T) U-verse. (See Time Warner Cable Subs Growth Slows in Q4 .)
He's much happier about the way Cablevision Systems Corp. (NYSE: CVC) has handled the competition and its ability to get its triple-play bundle more deeply penetrated.
"When Glenn Britt, Time Warner Cable's CEO, wakes up in the morning we simply do not get the sense that his goal for the day is to evict Verizon (or AT&T) from every household in his footprint," Greenfield wrote. Instead, he's gotten a bit sour on the MSO's reactive tactics, including adding more hi-def channels, and offering better product discounts. He just doesn’t think Time Warner Cable is prepared for the competitive war it's faced with.
He also isn't wild about TWC's wireless strategy with Clearwire LLC (Nasdaq: CLWR), an investment that has already cost the MSO $550 million. Time Warner expects to give WiMax service a try in at least one market this year. (See TWC in '09: Job Cuts, WiMax & Wideband .)
"The poor investment is a negative, in and of itself," Greenfield argues, "but our larger concern is that Time Warner is simply trying to 'get the milk, without buying the cow.' " He thinks TWC (and presumably other MSOs tied into Clearwire) "will need a better answer to the voice and portable data question by 2010."
Then again, Greenfield's feelings about TWC aren't exactly new. He downgraded the MSO to Sell last year on concerns it wasn't prepared to deal with FiOS's invasion of New York City, but then upped it to Neutral last October, in part because he believed the MSO's financing appeared to be on solid footing as it prepared to separate from Time Warner Inc. (NYSE: TWX). (See Taking Stock in Time Warner Cable.)
Sanford C. Bernstein & Co. Inc. analyst Craig Moffett, who has historically held a more bullish view on TWC, currently gives the stock an Outperform rating and a target price of $33.
Time Warner Cable shares were down 22 cents (1.16%), to $18.75 each in early trading Thursday.
— Jeff Baumgartner, Site Editor, Cable Digital News