UBS Sees Trouble Ahead for Cable Stocks

Cable stocks, which have dropped about 35% since last summer, could be headed for more rought times ahead. At least, that’s the opinion of UBS analyst John Hodluk, who Thursday picked up coverage of the cable and satellite TV stocks. He starts Comcast (CMCSA), Cablevision (CVC), Time Warner Cable (TWC) and Dish Network (DISH) with Neutral ratings; he launched DirecTV (DTV) with a Buy.

Hodulik thinks cable operators are heading for a slowdown in 2008 and 2009. His reasons:

• Weaker consumer spending.
• Slower penetration of advanced services.
• Increased competition.

Hodulik thinks the Street may be under-estimating the potential impact on cable subscriber numbers from the rapid rollout of video services by Verizon (VZ) and AT&T (T). He says the two telcos will double the reach of their video services this year to about 18% of homes passed, and to double again by the end of 2010. He expects cable to see a tripling of basic subscriber losses this year.

Meanwhile, he also thinks broadband growth will slow in the face of already high penetration rates and the current economic worries.

“While it is difficult to infer the expectations built into current stock prices, we avoid recommending stocks when we believe consensus estimates need to come down,” he writes. “Combining this with decelerating revenue growth, we do not believe the environment exists for multiple expansion despite the low valuations.”

As noted, the one exception to his negative stance is DirecTV, which he thinks could benefit from market share gains and potential restructuring.

One other thing: short-seller Jim Chanos thinks the stocks look like shorts, according to the AP.

Comments

[mkreisel:]

Where was the guy when CMCSA was close to 30?

2008 Feb 10 06:12 PM

[4truth:]

exactly...Wall St is just one big echo chamber

2008 Feb 11 09:53 AM

[tkenyon:]

Last time I heard Chanos calling Comcast a short was at the VIC in Nov. 2005. It proceeded to go up 50% immediately thereafter. And you guys are right - the Street analysts are always several steps behind in their groupthink. It's probably much closer to a buy than it is a sell.

2008 Feb 11 06:18 PM

[mkreisel:]

What a great contrarian indicator! CMCSA beats, restarts dividend, shares up 8%.

2008 Feb 14 09:22 PM