Taking Stock in Time Warner Cable
In a note issued today, Greenfield said he remains concerned about the MSO's competitive prospects and the difficulty it will face in retransmission negotiations with programmers, but he adds that those issues are now reflected in the valuation of Time Warner Cable's stock.
Adjusting for the to-be-paid $10.27 dividend tied to the MSO's spinoff from Time Warner Inc. (NYSE: TWX), shares in Time Warner Cable are trading at 10 times Greenfield's earnings-per-share estimate of 90 cents, an estimate well below consensus. Another way to look at it: The shares are trading at 8.8 times estimated free cash flow, and 4.7 times the 2009 earnings before interest, taxes, depreciation, and amortization (EBITDA) estimate.
Greenfield removed his price targets of $20.27 (pre-dividend) and $10.00 (post-dividend). Thanks in part to a big rally on Wall Street Monday, Time Warner Cable shares surged $2.44 (12.47%), to close at $22.01.
Time Warner Cable's "financing appears to be quite solid," implying that the $10.27 dividend will be paid, as planned when the [Time Warner Inc.] separation occurs (which will likely slip into Q2 2009)," Greenfield wrote. "However, we are increasingly concerned with how much terming out the debt TWC uses for its one-time dividend will ultimately cost TWC (given the hostile debt markets that currently exist)." (See Time Warner Cable Leaving the Nest.)
Verizon, which has until 2014 to complete its fiber-to-the-premises buildout in NYC, will butt heads with Time Warner Cable in Staten Island and Manhattan. Although Greenfield has questioned Time Warner Cable's readiness for FiOS, another industry analyst said the near-term effect of Verizon's franchise approval in the Big Apple "is wildly overstated." (See Time Warner Cable Faces FiOS Attack.) One of the things Time Warner Cable is expected to do to compete is to rollout Internet services based on the speedier Docsis 3.0 platform. (See Britt: Docsis 3.0 Coming to NYC and 'Surgical' Strikes .)
— Jeff Baumgartner, Site Editor, Cable Digital News