Cable companies recession-proof? By Reuters
http://news.com.com/Cable+companies+recession-proof/2100-1038_3-6093163.html Story last modified Wed Jul 12 08:51:53 PDT 2006 Investors seeking a hedge against a possible U.S. economic downturn may want to take a look at the cable television industry. Cable operators have in the past been thought recession-resilient as consumers were seen more likely to stop dining out or buying new clothes before they stopped paying their cable bill. With the industry's expansion into Internet and telephone services, analysts say cable shares are becoming almost recession-proof. "Cable looks to us like an ideal defensive," Bernstein Research analyst Craig Moffett wrote in a report Tuesday. "The average American family watches more than eight hours of television per day. They'd sooner disconnect their refrigerator than miss...'The Sopranos.'" Many popular television programs, like "The Sopranos," are only available on premium channels such as HBO, which is owned by Time Warner. Shares of the largest U.S. cable operator, Comcast, gained 23 percent to date. The S&P 500 index is up 1 percent, and the Nasdaq is down about 5 percent since the beginning of the year. U.S. cable operators added 891,000 subscribers in the first quarter, up 71 percent from the same period last year, according to a report last month from credit rating agency Fitch Ratings. These additions came despite growing competition from phone companies, with AT&T and Verizon Communications rolling out their own versions of "triple play" phone, video and Internet service bundles. "All the cable companies are acting in concert for the first time I can remember, in terms of their operating strategy, with the $100 bundle led by cheap voice," Aryeh Bourkoff, an analyst at UBS, said on a conference call in June. "This plays pretty well to this economy, (with a) more sensitive consumer due to gas prices and interest rates." Cable executives say their customers are less likely to cancel bundled services than individual phone, video or Internet services because they would lose cost savings. Comcast is trading at about seven times estimated 2007 earnings before interest, tax, depreciation and amortization, according to Reuters Estimates. "While they (Comcast) have bounced off their recent lows, these are still historical low valuations for the industry," Bourkoff said on Monday. Neither Bourkoff nor his employer own Comcast or other cable stocks. Bourkoff has a buy rating on the stock of both Comcast and smaller cable company Cablevision Systems. He was an adviser to a Time Warner deal and does not comment on the company. Bernstein's Moffett on Tuesday raised his target price on Comcast to $40 from $37 per share, and on Cablevision to $25 from $23 per share. He has a buy rating on both companies. Patrick Esser, president of privately owned Cox Communications, the third-largest U.S. cable operator, told a conference in June that the bundling strategy has reduced customer losses by 40 percent over the last 10 years. According to research issued in May by Leichtman Research Group, 43 percent of the 1,600 adults surveyed said they live in households that receive TV, phone or Internet services from a single company. But while subscriptions for cable TV and phone services are seen to be fairly secure, even in the event of a sharp economic downturn, some analysts said subscriptions for high-speed Internet connections are less certain because the service has not established itself as a utility fixture in the home. Bernstein's Moffett was more bullish. "I suspect that the view has shifted and that broadband service to the home is quickly becoming a necessary utility--and therefore immune to economic softness," he said. Brian Roberts, chief executive of Comcast, highlighted broadband as "one of the growing parts of the U.S. economy." He also shrugged off economic worries. "We asked ourselves the same question after (the Sept. 11, 2001, terrorist attacks), but what we found is that even in tough times, nobody wants slow speeds again," Roberts told Reuters after a conference in May. Comcast was trading at $31.96 on Nasdaq Tuesday morning, while Time Warner, owner of the second-largest cable operator in the United States, was at $16.28 on the New York Stock Exchange. Time Warner, which is made of many units, including Internet service provider AOL and Hollywood Studio Warner Bros. Entertainment, is down by about 6 percent this year. Cablevision was trading at $21.69, down around 6.5 percent this year, after the company issued special dividends in April. Another cable operator, Charter Communications, was trading at $1.17 on Nasdaq. ================================ George Antunes, Political Science Dept University of Houston; Houston, TX 77204 Voice: 713-743-3923 Fax: 713-743-3927 antunes at uh dot edu Reply with a "Thank you" if you liked this post. _____________________________ MEDIANEWS mailing list [email protected] To unsubscribe send an email to: [EMAIL PROTECTED]
