Time Warner Cable: Earnings Preview

Apr.25.12 | About: Time Warner (TWC)

Time Warner Cable Inc. (NYSE:TWC) is slated to release its first quarter 2012 results on Thursday, April 26, before the opening bell. The current Zacks Consensus Estimate for the first quarter is pegged at $1.22, representing annualized growth of 21.08%.

With respect to earnings surprises over the trailing four quarters, Time Warner Cable has outperformed the Zacks Consensus Estimate in three of the last four quarters. The average earnings surprise was positive 4.22%.

Fourth Quarter Recap

On January 26, 2012, Time Warner Cable reported its fourth quarter 2011 financial results. Quarterly GAAP net income was $564 million or $1.75 per share compared with a net income of $392 million or $1.09 per share in the prior-year quarter. Fourth-quarter 2011 adjusted (excluding special items) EPS of $1.39 handily beat the Zacks Consensus Estimate of $1.21.

Total revenue in the quarter increased 4% year over year to $4,993 million, surpassing the Zacks Consensus Estimate of $4,969 million. Quarterly adjusted operating income before depreciation and amortization (OIBDA) climbed 8.7% year over year to $1,889 million. GAAP operating income grew 3.5% year over year to $1,029 million.

Agreement of Estimate Revisions

In the last 30 days, out of the 17 analysts covering the stock, one analyst increased the EPS estimate for the first quarter of 2012 but four analysts reduced the same. However, for the second quarter of fiscal 2012, out of the 16 analysts covering the stock, five analysts raised EPS estimates while none decreased.

Similarly, for fiscal 2012, in the last 30 days, out of the 20 analysts covering the stock, six analysts moved the estimates upward while one analyst moved downward. For fiscal 2013, out of the 18 analysts covering the stock, four analysts increased the EPS estimates while one analyst moved in the opposite direction.

Magnitude of Estimate Revisions

During the last 30 days, the current Zacks Consensus Estimate for the first quarter of 2012 was 2 cents below the previous estimate of $1.24. Likewise, for the second quarter of 2012, the current Zacks Consensus Estimate jumped 2 cents from the earlier estimate of $1.39.

For fiscal 2012, the current Zacks Consensus Estimate was 5 cents above the prior estimate of $5.54. Similarly, for fiscal 2013, the current estimate was 11 cents above the prior estimate of $6.67.

Earning Surprises

The current Zacks Consensus Estimate for the ongoing quarter contains a 0.00% upside potential while for the upcoming quarter, it is reflecting a 3.55% upside potential (essentially a proxy for future earning surprises). Similarly, for fiscal 2012, the Zacks Consensus Estimate reflects a growth of 2.50% while the same for 2013 contains an upside potential of 3.69%.

Our Recommendation

We believe that 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 #2 Rank, implying a short-term Buy rating on the stock.