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Following the first quarter earnings announcement on April 26, most of the analysts covering Time Warner Cable Inc. (TWC - Analyst Report) have slashed their estimates. The brokers’ bearish stance is based on the company’s continuous loss of residential video customers.
First Quarter Highlights
On a GAAP basis, quarterly net income was $382 million or $1.20 per share, compared with $325 million or 93 cents in the year-ago quarter. Adjusted EPS came in at $1.30, substantially beating the Zacks Consensus Estimate of $1.22.
Quarterly total revenue of $5,134 million was up 6.4% year over year, and surpassed the Zacks Consensus Estimate of $5,121 million. Operating income before depreciation and amortization (OIBDA) increased 8.2% year over year to $1,873 million.
Agreement of Analysts
Of the 18 analysts covering the stock in the last 7 days, none has revised the estimate upward while one analyst has revised the estimate downward for the second quarter of 2012. For the third quarter of 2012, of the 17 analysts covering the stock, none has revised the estimates upward while only one has revised the estimate downward.
For fiscal 2012, out of the 21 analysts covering the stock in the last 7 days, none has raised the estimate while one analyst lowered it. However, for fiscal 2013, out of the 20 analysts covering the stock, none has raised or lowered the estimates.
Currently, the Zacks Consensus Estimate for the second quarter of fiscal 2012 is $1.39, with a projected annual growth of 17.61%. For the third quarter of fiscal 2012, the Zacks Consensus Estimate of $1.42 indicates an annual gain of 27.87%.
Magnitude of Estimate Revisions
During the last 7 days, the current Zacks Consensus Estimates for the second quarter and third quarter of 2012 has been in line with previous estimates of $1.39 and $1.42 respectively. However, for fiscal 2012, the current Zacks Consensus Estimates was a penny below the prior estimate of $5.64. For fiscal 2013, the current Zacks Consensus Estimates was three cents below the earlier estimate of $6.93.
The company has outdone the Zacks Consensus estimates in three out of four quarters. In the first quarter of 2012, Time Warner Cable outpaced the consensus estimate by 8 cents or 6.56%.
The ongoing quarter of fiscal 2012 contains a 0.72% downside risk (essentially a proxy for future earnings surprises), while estimates for the third quarter of 2012 are in line with the Zacks Consensus. Similarly, fiscal 2012 estimates are in line with the Zacks Consensus, while 2013 reflects a downside risk of 0.44%.
We believe that Time Warner cable’s significant subscriber growth for broadband and digital phone services, decision to expand its Wi-Fi network and its new strategic move to consolidate its Cable TV business will act as positive catalysts in the long run.
However, a bleak macro economic situation, stiff competition from rival Comcast Corporation (CMCSA - Analyst Report) along with telecom carriers like Verizon Communication Inc (VZ - Analyst Report) and AT&T (T - Analyst Report) and saturation of the multi-channel video market in the U.S. may create significant headwinds for the company.
We maintain our long-term Neutral recommendation on Time Warner Cable. Currently, Time Warner Cable has a Zacks #2 Rank, implying a short-term buy rating on the stock.
About Earnings Estimate Scorecard
As a PhD from MIT, Len Zacks proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at: http://www.zacks.com/education/