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Time Warner Cable Inc. (TWC - Analyst Report) – the second largest cable Multi Service Operator (MSO) in the U.S. is contemplating to tie up with Megacable – a triple play service provider in Mexico, to provide phone service targeting the U.S Hispanic customers.

Megacable, which already holds a marketing deal with Mexican broadcaster Grupo Televisa, S.A.B (TV - Analyst Report), is negotiating with Time Warner to form a strategic alliance, which will allow the U.S. cable MSO subscribers to receive phone calls from Megacable customers in Mexico at discounted long distance rates.  

Last year, Megacable tied up with the Mexican subsidiary of Spain’s Telefornica (TEF - Analyst Report) to offer a wireless service, which hasn’t become very successful till now. We believe that if this proposed joint venture actually materializes it will expand its operational boundary coupled with opening up a new revenue stream for the company, which is facing stiff competition in its core broadcasting business within Mexico.

Recently, arch rival Comcast Corporation (CMCSA - Analyst Report) has launched the Xfinity Triple Play MultiLatino service, which includes high-speed internet services, a wireline service with 300 free international minutes and the MultiLatino TV video programming and services targeting the Hispanic customers.

This is a strategic move by the company to counter Comcast’s XFinity Triple Play MultiLationo service. We believe this proposed service will specially attract the Central and Latin American customers residing in North America as it is expected that they will spend more voice minutes with the Hispanic Heritage Month just round the corner.    

The current Zacks Consensus Estimate for Time Warner Inc. is pegged at $1.39 for the third quarter of 2012 with a growth rate estimate of 25.23%. For 2012, the Zacks Consensus Estimate stands at $5.62 with a growth rate of 20.16% while for 2013, the Zacks Consensus Estimate stands at $6.85 with a growth rate of 21.72%.

Recommendation:

We retain our long-term Neutral recommendation on Time Warner Cable Inc. Currently, it has a Zacks #3 Rank, implying a short-term Buy rating.

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