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Time Warner Cable Inc. (NYSE:TWC) is slated to release its second quarter 2011 results on Thursday, July 28, before the opening bell. The current Zacks Consensus Estimate for the second quarter is pegged at $1.15, representing an annualized growth of 18.88%.

With respect to earnings surprises over the trailing four quarters, Time Warner Cable has outperformed the Zacks Consensus Estimate in all the three quarters except the last quarter where it missed the Zacks Consensus Estimate by a penny. The average earnings surprise was a positive 3.30%, implying that the company has surpassed the Zacks Consensus Estimate by the same magnitude over the last three quarters.

First Quarter Recap

On April 28, 2011, Time Warner Cable reported its first quarter 2011 financial results. Total revenue increased 5% year over year to $4,827 million and exceeded the Zacks Consensus Estimate of $4,780 million. This was attributable to an increase in residential subscription revenue, commercial subscription revenue, and advertising revenue.

Quarterly GAAP net income was $325 million or 93 cents per share compared with a net income of $214 million or 60 cents per share in the prior-year quarter. First quarter 2011 adjusted (excluding special items) EPS of $1.01 edged out the Zacks Consensus Estimate of $0.99.

Agreement of Estimate Revisions

In the last 30 days, out of the 19 analysts covering the stock, 2 analysts increased their EPS estimates for the second quarter of 2011 while 2 reduced the same. For the third quarter of fiscal 2011, out of the 18 analysts covering the stock, 5 analysts increased their EPS estimates while 2 slashed their estimates.

Similarly, for fiscal 2011, in the last 30 days, out of the 19 analysts covering the stock, 6 analysts increased their estimates while 4 analysts moved downward. For fiscal 2012, out of the 19 analysts covering the stock, 4 analysts increased their EPS estimates while 5 analysts moved in the opposite direction.

Magnitude of Estimate Revisions

During the last 30 days, the Zacks Consensus Estimate for the second quarter was in line with the current estimates of $1.15 but for the third quarter of 2011, the Zacks Consensus Estimate was 2 cents short of the current estimates of $1.18.Similarly, for fiscal 2011, the Zacks Consensus Estimate was a penny below the current estimate of $4.52. However, for fiscal 2012, the Zacks Consensus Estimate was a penny above the current estimate of $5.66.

Earning Surprises

In the previous quarter, Time Warner Cable reported EPS of $1.01, which surpassed the Zacks Consensus Estimate by 2 cents. The current Zacks Consensus Estimate for the ongoing quarter contains a 0.87% upside potential while for the upcoming quarter, it is reflecting a 1.70% downside potential (essentially a proxy for future earning surprises). Similarly, for fiscal 2011 the Zacks Consensus Estimate reflects downside potential of 0.44% but the Zacks Consensus Estimate for 2012 contains an upside potential of 0.88%.

Our Recommendation

Solidfree cash flow, healthy demand for premium cable services fueled by the improving U.S. economyand increased subscribers growth will drive the company’s top-line and bottom-line growth. Moreover, the company’s strong share buy back program coupled with hike in dividend will act as tailwinds for the stock going forward.

However, stiff competition from formidable rivals like Comcast (NASDAQ:CMCSA) and AT&T’s (NYSE:T) U-Verse networkas well as the newly emerged online video streaming companies like Netflix, Inc. (NASDAQ:NFLX) and Hulu, will hurt profitability going forward.

We maintain our long-term Neutral recommendation on Time Warner Cable. Currently, Time Warner Cable has a Zacks #3 Rank, implying a short-term Hold rating on the stock.

Source: Time Warner Cable: Earnings Preview