News

Sagging Cable Stocks Get Welcome Lift

10/08/2000 8:00 PM Eastern

Cable stocks got a nice lift last week, as investors have apparently stopped worrying about competition and shrinking cash-flow growth-at least for a while.

The big winners were Adelphia Communications Corp. and Charter Communications Inc., whose respective stock prices rose 15.4 percent and 14.7 percent between Sept. 28 and Oct. 4.

The week's other big gainers included Cox Communications Inc., up 12.4 percent for the period; Comcast Corp., up 4.9 percent, and Cablevision Systems Corp., up 11.6 percent.

Cox, Cablevision and Charter also were among those companies that made presentations at a Goldman, Sachs & Co. investor conference last week. Their CEOs also made interview appearances on CNBC.

The stocks were down 30 percent to 50 percent for the year, noted Banc of America Securities Corp. cable analyst Doug Shapiro. Investors might have gotten past their gloomy outlook, he said.

Some cash may have shifted toward cable and away from tech stocks, which have been hurt on signs of slowing personal-computer growth, Shapiro added.

"The stars are starting to align" for cable, he said. "Investors are looking for a safe haven against slowing economic growth. And most of the traditionally defensive sectors have already had a huge run."

Fears that direct-broadcast satellite competitors would cut into cable's subscriber growth have so far been overstated, Shapiro added.

"The competitive threat seems to be stabilizing for cable, if not improving," he said. "DBS continues to be a very potent competitor, but that risk has stabilized, relative to what people may have feared at the beginning of the year.

"The ability [of DBS] to offer local-into-local has not resulted in negative cable subscriber growth."

Shapiro also gave some credit to Cox, a closely watched cable stock that's come off a recent downturn.

Cox stock fell like a stone in July, after the company reported just 7 percent cash-flow growth for the second quarter. That was below analysts' forecasts of 9 percent and well below the 10-percent-plus industry average. Other cable stocks were hurt then, too.

"Cox's stock was walloped after the second-quarter news," Shapiro said. "As it started to become clear that the concern was overblown, it has helped the rest of the industry.

"To the extent that Cox led the industry down with its bad news, when it filters through the market that that was an overreaction, it's going to lift the whole sector to the same degree."

Cox's July swoon was also triggered by an acknowledgement of stiff competition from U S West Inc. (now Qwest Communications Inc.) in the MSO's largest cluster, Phoenix. U S West had about 55,000 voice, video and data customers in July, focusing on the 40 percent of the Phoenix market where Cox had not upgraded.

Though Phoenix is still feeling the pinch, Cox has apparently weathered the cash-flow storm and is ready to begin turning in growth numbers that are more in line with its cable peers.

According to several analysts, Cox officials have hinted that cash flow will be up 12 percent in the third quarter and 15 percent for the fourth quarter.

Analysts said they expect Cox to report overall cash-flow growth of 10.2 percent to 10.6 percent for the year.

Though Cox has not given specific guidance on the third and fourth quarters, spokeswoman Amy Cohn said the company is sticking to its second-quarter projection that it would end the year with about 11 percent cash flow growth.

"We typically always have a stronger end of the year than we do the beginning of year," Cohn said.

SG Cowen Securities Corp. analyst Gary Farber said Cox has stepped up its new-product rollout and cut costs by shifting toward self-installation of high-speed data services. The MSO expects to finish the year with 1.5 million to 1.6 million new-services customers, a goal Farber characterized as a "layup."

Farber added that Cox should end the third quarter with cash-flow growth in the vicinity of 12 percent, with 15 percent growth expected in the fourth quarter.

"The key thing is to get above 10 percent [growth] for the year," Farber said. "The next issue for these guys is what happens next year."


Cable Stocks on the Rise

Company 9/28 Price 10/04 Price %Change


Adelphia


$25.19


$29.06


15.4%


Charter


15.75


18.06


14.7%


Cox


38.25


43.00


12.4%


Cablevision


64.75


72.25


11.6%


Time Warner


79.85


86.00


7.7%


Comcast


39.50


41.44


4.9%


AT & T


28.75


29.75


3.5%


Insight


16.75


16.38


-2.2%


Mediacom


15.56


14.63


-6%


Classic


5.38


5.00


-7.1%


Source: Nasdaq

September