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Time Warner Cable Inc. (TWC - Analyst Report) is slated to release its third-quarter 2012 results on Wednesday, October 31, before the opening bell. The Zacks Consensus Estimate for the quarter is pegged at $1.41, representing growth of 27.03% from the year-ago quarter.

With respect to earnings surprises, Time Warner has outperformed the Zacks Consensus Estimate in three of the last four quarters with an average beat of 6.52%.

First Quarter Recap

On August 2, Time Warner reported its second-quarter 2012 financial results. Quarterly GAAP net income was approximately $452 million or $1.43 per share compared with a net income of $420 million or $1.24 per share in the prior-year quarter. Adjusted earnings per share (excluding special items) of $1.48 in the reported quarter handily beat the Zacks Consensus Estimate of $1.38.

Quarterly net revenue increased 9.3% year over year to $5,404 million, surpassing the Zacks Consensus Estimate of $5,367 million. Quarterly adjusted operating income before depreciation and amortization (OIBDA) climbed 10.3% year over year to $2,011 million. GAAP operating income grew 9.6% year over year to $1,990 million.

Agreement of Estimate Revisions

In the last 30 days, out of the 16 estimates, 5 revised upward while 2 moved in the opposite directions for the third quarter. For the fourth quarter of 2012, out of the 17 estimates, 5 upward revisions were witnessed, while one moved downward over the same timeframe.

For 2012, in the last 30 days, out of the 17 estimates, there were 7 upward revisions while no downward revision was witnessed. For 2013, out of the 21 estimates, 8 were revised upward, while one moved in the opposite direction over the same period.

Magnitude of Estimate Revisions

Over the last 30 days, the current Zacks Consensus Estimate has improved by 2 cents for both third and fourth quarter of 2012. The current Zacks Consensus Estimate improved by 4 cents for 2012 over the last 30 days, while the estimate has improved by 14 cents for 2013 over the same time frame.

Our Recommendation

We believe that continuous loss of subscribers coupled with stiff competition from online video streaming companies like Netflix, Inc. (NFLX - Analyst Report) and Hulu will hurt profitability going forward. Additionally, telecom service providers like Verizon Communication (VZ - Analyst Report) and AT&T Inc. (T - Analyst Report) are quickly gaining market from the cable MSO’s by offering fibre-based TV, which is believed to be a  threat for Time Warner.

However, the company’s strategy of rebranding itself as a major broadband service provider for residential customers is expected to generate significant subscriber growth for its broadband segment. Business segment became a major growth driver for Time Warner Cable and continuous deployment of DOCSIS 3.0 technology will drive the commercial segment revenue going forward. Moreover, the acquisition of NaviSite will allow the company to expand its presence in the fast-growing cloud-based service business.

We maintain our long-term Neutral recommendation on Time Warner Cable. However, the company has a Zacks #2 Rank, implying a short-term Buy rating.

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