Cablevision (CVC) in Strong Position Based on Valuation, M&A Potential - Barron's
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Cablevision (NYSE: CVC) is coming out swinging Monday following a bullish report on the company in Barron's over the weekend.
Barron's highlights the potentially untapped value of Cablevision as a pure-play cable TV business, which may become an attractive M&A option for Time Warner Cable (NYSE: TWC) or Comcast (Nasdaq: CMCSA).
But investors aren't focused on a sale, which may take several years -- if at all -- to complete. Instead, dismal second- and third-quarter earnings reports have caused the stock to plummet 36 percent in 2011.
With Cablevision able to generate gobs of free cash, a dividend of 60 cents per share annually (with a 4 percent yield) and about 10 percent of outstanding common stock bought back since the start of 2010, investor reaction seems to be overdone.
Owners of Cablevision, the Dolan's, appear to have positioned the company for a sale, spinning off Madison Square Garden (NYSE: MSG) in 2010 and more recently, AMC Networks (Nasdaq: AMCX).
On a valuation basis, Cablevision is trading for 6x pre-tax cash flow, better than Time Warner or Comcast, but below its historical level. Cablevision should also generate free cash of about $2 per share in 2011.
Cablevision is also one of the more successful cable providers, trumping competitors on things like penetration rates and average revenue per subscriber (ARPU). Focused in the New York area, Cablevision is used by about 61 percent of New Yorkers and ARPU is about $150 per month.
Pressure, Barron's notes, is coming in strong from Verizon (NYSE: VZ), which is pushing its FiOS service in half of Cablevision's territory. Despite this, Cablevision has been able to keep subs at the 3 million mark over the last several years, fending off Verizon's attacks.
Other pressure includes economic and alternatives such as satellite TV and simply streaming Netflix (Nasdaq: NFLX) or Hulu instead of suffering through monthly cable bills. Cablevision CFO Tom Rutledge stated last quarter Cablevision is facing cyclic pressure, but still has room to grow with its triple play offerings.
Barron's notes Cablevision would best fit with Time Warner because Cablevision's customers surround Time Warner's New York City franchise. On a takeover, $30 per share is the number being thrown around, more than double where the stock closed last Friday. At a market cap of $4.3 billion, the company would be easily digestible by either Comcast or Time Warner.
Without a transaction, Barron's contends Cablevision will still do well for investors based on metrics and valuation.
Shares of Cablevision are up over 5 percent early Monday.
Barron's highlights the potentially untapped value of Cablevision as a pure-play cable TV business, which may become an attractive M&A option for Time Warner Cable (NYSE: TWC) or Comcast (Nasdaq: CMCSA).
But investors aren't focused on a sale, which may take several years -- if at all -- to complete. Instead, dismal second- and third-quarter earnings reports have caused the stock to plummet 36 percent in 2011.
With Cablevision able to generate gobs of free cash, a dividend of 60 cents per share annually (with a 4 percent yield) and about 10 percent of outstanding common stock bought back since the start of 2010, investor reaction seems to be overdone.
Owners of Cablevision, the Dolan's, appear to have positioned the company for a sale, spinning off Madison Square Garden (NYSE: MSG) in 2010 and more recently, AMC Networks (Nasdaq: AMCX).
On a valuation basis, Cablevision is trading for 6x pre-tax cash flow, better than Time Warner or Comcast, but below its historical level. Cablevision should also generate free cash of about $2 per share in 2011.
Cablevision is also one of the more successful cable providers, trumping competitors on things like penetration rates and average revenue per subscriber (ARPU). Focused in the New York area, Cablevision is used by about 61 percent of New Yorkers and ARPU is about $150 per month.
Pressure, Barron's notes, is coming in strong from Verizon (NYSE: VZ), which is pushing its FiOS service in half of Cablevision's territory. Despite this, Cablevision has been able to keep subs at the 3 million mark over the last several years, fending off Verizon's attacks.
Other pressure includes economic and alternatives such as satellite TV and simply streaming Netflix (Nasdaq: NFLX) or Hulu instead of suffering through monthly cable bills. Cablevision CFO Tom Rutledge stated last quarter Cablevision is facing cyclic pressure, but still has room to grow with its triple play offerings.
Barron's notes Cablevision would best fit with Time Warner because Cablevision's customers surround Time Warner's New York City franchise. On a takeover, $30 per share is the number being thrown around, more than double where the stock closed last Friday. At a market cap of $4.3 billion, the company would be easily digestible by either Comcast or Time Warner.
Without a transaction, Barron's contends Cablevision will still do well for investors based on metrics and valuation.
Shares of Cablevision are up over 5 percent early Monday.
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