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Bear of the Day: Cablevision (CVC)

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This cable television company is going through a challenging time due to rising programming costs, Sandy related damages and increased competition.

Further, sharp downward estimates revisions have resulted in a cloudy near-term outlook for this Zacks Rank # 5 (Strong Sell) stock.

About the Company

Cablevision Systems Corporation is one of the country's leading media and telecommunications companies. They deliver cable, Internet, and voice offerings throughout the New York area. Additionally, the company owns and operates cable systems in four Western states.

Disappointing Fourth Quarter Results

The company announced its fourth quarter and full year 2012 results on February 28, 2013. The quarter resulted in a loss of 30 cents per share, 40 cents per share worse than the consensus estimate.

The company lost 50,000 video customers, 5,000 high-speed data customers and 10,000 voice customers during the fourth quarter. 

The poor performance was in part due to Hurricane Sandy which reduced the AOCF by about $110 million. But the results were disappointing even excluding the effect of Sandy. Further, management’s guidance for 2013 also failed to inspire.

CVC said that they had budgeted 2013 capital expenditures at a lower level than that in 2012. They did not repurchase any shares during the fourth quarter and do not anticipate repurchasing shares during the first quarter of 2013.

Downwards Revisions

Due to disappointing results and uninspiring guidance, four analysts have revised their quarterly estimates downwards and seven analysts have revised the estimates for the full-year downwards, in the last 60 days.

Zacks consensus estimate for the current quarter now stands at $0.06 per share versus $0.16 per share, 60 days ago, while the full-year consensus estimate is $0.39 per share now, down from $0.76 per share.

The Bottom Line

Strong competition from much cheaper online streaming services provided by Netflix, Hulu and Amazon is adding to challenges faced by cable TV operators.

Further the company anticipates significant AOCF pressure in the first quarter of 2013 due to higher programming costs and other expense increases, as well as the first quarter seasonal decline in advertising revenues.

CVC is currently Zacks Rank # 5 (Strong Sell) stock and it also has a longer-term recommendation of “Underperform”.

Given above reasons, we would advise the investors to stay away from this stock for the time being.

Better Play

Investors looking for exposure to the cable industry can consider Comcast Corp (CMCSA), which is a Zacks #2 Rank (Buy) stock.

Though Comcast is losing basic video subscribers, the company had managed to increase its

Internet and telephony subscribers. Comcast’s bundled services seem to working well with the customers as 75% of its video customers subscribe to two services and almost 40% customers subscribe to three services.

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