News

Good Numbers, Bad Results

10/31/2008 8:00 PM Eastern

Comcast kicked off the third-quarter earnings season with less of a bang than some investors apparently had hoped — but the punishment it received did not carry over to other cable stocks.

10/27 10/30 % Change
SOURCE: NASDAQ
Comcast $13.62 $15.10 10.9%
Time Warner Cable $18.01 $19.57 8.7%
Charter $0.37 $0.41 10.8%
Cablevision $14.28 $16.85 18%
Mediacom $3.01 $4.19 39.2%

Once again, on Oct. 29, Comcast reported consistent quarterly earnings, with revenue and cash-flow growth both up a healthy 10%. Digital subscribers were up by 417,000 and the biggest U.S. cable operator added 382,000 high-speed data customers and 483,000 telephone customers in the period.

Following recent behavior, though, investors weren't looking at those fundamentals. They seemed to focus on a larger-than-expected basic-subscriber loss (147,000) and word that Comcast probably wouldn't spend the remaining $4.1 billion in the share-repurchase program this year.

Comcast stock dipped almost 10% ($1.68) on Oct. 29 and continued that slide on Oct. 30, losing 18 cents (1.2%) to close at $15.10 per share. The stock had enjoyed a 24.5% ($3.34) gain on Oct. 28, so some profit-taking might have been at work.

Market reaction aside, Comcast's results did seem to back up what the company and the rest of the industry have been saying for quite a while — the economic downturn hasn't had much of an impact on the underlying business.

Overall, cable stocks performed well last week, driven mainly by the big surge on Oct. 28, when the sector as a whole rose 12%.

For the four days leading to last Thursday, the cable sector was up about 14%.

On a conference call with analysts, chairman and CEO Brian Roberts said Comcast has been gearing up for a downturn for about a year and is well positioned to weather an economic malaise.

“Is cable a good business? Is Comcast ready? I think absolutely yes,” he said.

Sanford Bernstein cable and satellite analyst Craig Moffett's take was that growth metrics at Comcast were a bit lighter than expected, possibly enough to discourage investors.

“No company is 'recession-proof,' ” Moffett wrote in a research note. “Cable may be as close as you can get … but even at Comcast, signs of economic weakness are there, even if relatively faintly.”

Miller Tabak analyst David Joyce said Comcast's results were in line with his estimates. “They were spot-on with my net RGU estimates, but they got there in a different way,” Joyce said, referring to revenue-generating units (subscribers to telephone, video and Internet services). Basic subscriber losses were higher than he estimated, but so were additions in high-speed Internet, phone and digital video.

Comcast chief operating officer Steve Burke downplayed the basic losses, saying they were mostly single play customers.

“What we have seen — and this has been going on for a while and has been accelerating recently — is that our connects are lower than they were last year; interestingly, our disconnects are not rising,” Burke said on the call. “It's not that people who have our services are leaving. It's that there is less propensity to upgrade, less propensity to move and take our services when someone moves into town.”

Joyce was especially encouraged by Comcast's free cash flow: at $1.2 billion, it was 120% higher than in the same period last year.

While Comcast fell after reporting results, other cable stocks rose on Oct. 30. Time Warner Cable, scheduled to report third-quarter results on Nov. 5, rose 7.1% ($1.29) to $19.57, Cablevision Systems rose $1.11 (7.1%) to $16.85; Mediacom ticked up 37 cents (9.7%) to $4.19 and Charter rose a penny (2.5%) to 41 cents.

Joyce pointed to Comcast's gain the day before and said the other stocks, that went up on Oct. 30, “have been in the penalty box.”

September