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Time Warner Cable Inc. (NYSE:TWC) is slated to release its fourth quarter 2011 results on Thursday, January 26, before the opening bell. The current Zacks Consensus Estimate for the fourth quarter is pegged at $1.21, representing an annualized growth of 22.07%.

With respect to earnings surprises over the trailing four quarters, Time Warner Cable has outperformed the Zacks Consensus Estimate in two of the last four quarters. The average earnings surprise was positive 0.25%, implying that the company has surpassed the Zacks Consensus Estimate by the same magnitude in the two quarters.

Third Quarter Recap

On October 27, 2011, Time Warner Cable reported its third quarter 2011 financial results. Total revenue increased 3.7% year over year to $4,911 million, but missed the Zacks Consensus Estimate of $4,941 million. The year-over-year increase was attributable to higher residential subscription revenue and commercial subscription revenue, partially offset by lower advertising revenue.

Quarterly GAAP net income was $356 million or $1.08 per share compared with $360 million or $1.00 per share in the prior-year quarter. Third-quarter 2011 adjusted (excluding special items) EPS of $1.10 was well below the Zacks Consensus Estimate of $1.14.

Quarterly adjusted operating income before depreciation and amortization (OIBDA) climbed 3.9% year over year to $1,782 million. This was primarily due to healthy top-line growth, partly offset by higher video programming, marketing and personnel costs.

Agreement of Estimate Revisions

In the last 30 days, out of the 20 analysts covering the stock, four analysts increased the EPS estimate for the fourth quarter of 2011 but one analyst reduced the same. For the first quarter of fiscal 2012, out of the nine analysts covering the stock, three analysts raised EPS estimates while the remaining analysts did not revise.

Similarly, for fiscal 2011, in the last 30 days, out of the 19 analysts covering the stock, five analysts moved the estimates upward while two analysts moved downward. For fiscal 2012, out of the 20 analysts covering the stock, five analysts increased their EPS estimates but one analyst moved in the opposite direction.

We believe that most of the analysts adopted a bullish stance on Time Warner Cable’s stock mainly based on the new agreement with Verizon Communication Inc. (NYSE:VZ) to sell their products on a wholesale basis from each others’ outlets, thereby mitigating stiff competition with Verizon’s FiOS TV subscribers.

Magnitude of Estimate Revisions

With respect to the upward revision of estimate, during the last 30 days, the current Zacks Consensus Estimate for the fourth quarter was just a penny above the previous estimate of $1.20. Likewise, for the first quarter of 2012, the current Zacks Consensus Estimate jumped 3 cents from the earlier estimate of $1.20.

For fiscal 2011, the current Zacks Consensus Estimate was at par with the prior estimate of $4.46. However, for fiscal 2012, the current estimate was 3 cents above the prior estimate of $5.40.

Earning Surprises

The current Zacks Consensus Estimate for the ongoing quarter contains a 3.31% downside potential while for the upcoming quarter, it is reflecting a 0.00% upside potential (essentially a proxy for future earning surprises). Similarly, for fiscal 2011, the Zacks Consensus Estimate reflects an downside risk of 0.90% but the Zacks Consensus Estimate for 2012 contains an upside potential of 2.21%.

Our Recommendation

We believe that a continuous loss of subscribers, coupled with stiff competition from online video streaming companies like Netflix, Inc (NASDAQ:NFLX) and Hulu, will hurt profitability going forward.

However, increase in rates coupled with the continuous deployment of DOCSIS 3.0 technology will drive the commercial segment revenue going forward. Moreover, complete intregration of the newly acquired company NaviSite will further drive top-line growth going forward. We, thus 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.

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Source: Time Warner Cable: Earnings Preview