Time Warner Cable: Stock in Steady Slide

UBS’s Aryeh Bourkoff yesterday picked up coverage of Time Warner Cable (TWC) with a Buy rating and a $48 price target. Bourkoff says he considers the company a “pure play cable company” with a strong position in the New York and Los Angeles markets, “positioned for industry leading growth.”

Bourkoff sees 2007 revenue growth of 39% to $16.4 billion, with OIBDA [operating income before depreciation and amortization] growth of 37%; the company’s own guidance was for revenue growth in the mid-high 30s in both cases.

Over time, Bourkoff says, Time Warner Cable is likely to use its new currency - its stock - to make acquisitions. He lists Insight Communications and Cox Communications (both of which went private in recent years) and Charter Communications (CHTR) as potential consolidation candidates, as well as Cablevision’s (CVC) cable franchises.

The stock yesterday fell $1.60 to $36; the stock was down $5 over the last six sessions.

In part, the decline may reflect who the original shareholders of the company were: all of the stock not held by parent Time Warner (TWX) represented stock received by bondholders in the Adelphia Communications bankruptcy case. It would not be surprising to see many of them streaming for the exits; they were bond investors, after all, not equity investors. As those shares get recycled into the hands of equity market players, the stock could be volatile. Bourkoff tried to make the case in his report that the thin supply of shares could help buoy the shares in the face of bondholders looking to monetize their claims. But for now, it looks like selling by the bondholders is overwhelming the interest of investors interested in buying the cable company’s shares.

Previously: Time Warner Cable: Bear Stearns Starts Coverage With Peer Perform Rating; Says Comcast Is Cheaper