Why Time Warner Cable Stock Could Decline 12 Percent

Sep.10.10 | About: Time Warner (TWC)

In recent years, pay-TV stalwart Time Warner Cable (NYSE:TWC) has lost U.S. market share to cable rival Comcast (NASDAQ:CMCSA) along with telecom and satellite competitors.

Time Warner Cable is the second largest cable operator in the U.S. In addition to Comcast, it competes with AT&T (NYSE:T), Verizon (NYSE:VZ), DirecTV (NASDAQ:DTV) and Dish Network (NASDAQ:DISH) in the pay TV and broadband Internet access markets.

We currently expect the company to maintain its current share during the Trefis forecast period and have built this assumption into our $48.37 stock price estimate. But it’s always useful to question one’s assumptions, so here goes: If Time Warner Cable’s subscriber losses continue at recent rates during our forecast period, the company’s share of the U.S. pay-TV market could slide to 10% by 2016, which would knock 12% off the value of its stock.

Our analysis follows below.

Market share blues

Time Warner Cable’s share of the U.S. pay-TV market peaked at around 13.5% in 2006 before sliding to 12.3% by 2009. The company faces intense competitive pressure from telecom companies like AT&T that offer fiber-optic video services and from satellite providers like DirecTV that are using promotional offers and heavy brand marketing to attract subscribers.

Moreover, the company lacks the scale and reach of cable market leader Comcast, whose pay-TV subscriber base has also been shrinking of late.

By extrapolating the 2006-2009 trend out to 2016, the end of our forecast period, we conclude that Time Warner Cable’s pay-TV market share could decline to 10% by the end of our forecast period if subscriber losses continue at recent rates. In this scenario, Time Warner Cable’s stock would likely lose about 12% of its value.

You can drag the trend-line in the chart to create your own U.S. pay-TV share forecast for Time Warner Cable and see how it impacts the company’s estimated share value. See the complete $48.37 Trefis price estimate for Time Warner Cable’s stock here.