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We reiterate our long-term Neutral recommendation on Time Warner Cable Inc. (TWC - Analyst Report) following its mixed financial results for the second quarter of 2013. Net income surpassed the Zacks Consensus Estimate but revenues fell below the same. The company currently has a Zacks Rank #3 (Hold). We believe Time Warner Cable is currently fairly valued.

Why Kept at Neutral?

We view the change in Time Warner Cable’s business model as positive. Management has decided to adopt a four edged approach: (1) rebrand itself as a major broadband service provider for residential customers, (2) aggressively penetrate the commercial business segment, (3) change in marketing strategy like product segmentation and (4) significantly enhance shareholders’ wealth, such as systematic share repurchase and increase in dividend rate. The board of directors has decided to raise its share repurchase authorization to $4 billion immediately.  

Time Warner Cable generated significant subscriber growth for its broadband and digital phone services. In the second quarter of 2013, Residential Services revenues increased 0.3% despite huge video customer loss. This was mainly attributable to 12.5% growth of high-speed broadband services (Internet data) and 13.3% rise in Other revenues.

On the other hand, continued loss of video customers is a concern. Cable TV operators are gradually losing their hold in the U.S. pay-TV market. Time Warner Cable lost 191,000 residential video subscribers in the second quarter of 2013. Nine major cable TV operators, including Time Warner Cable and Comcast Corp. (CMCSA - Analyst Report), lost a whopping 555,000 video subscribers in the same timeframe. Whereas, telecom giants, Verizon Communications Inc. (VZ - Analyst Report) and AT&T Inc. (T - Analyst Report), jointly gained 373,000 subscribers in the same quarter.

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