Time Warner Cable (TWC) shares are trading lower after Pali Research analyst Richard Greenfield cut his rating on the stock to Sell from Neutral. Greenfield sees several issues for the company, including new competition from Verizon (VZ), especially in New York City, and the weakening macro picture. Greenfield trimmed his 2008 EPS estimate for the company to $1.27 from $1.31; for 2009 he goes to $1.11 from $1.21.
Greenfield notes that Verizon last week received final regulatory approval to launch FiOS TV service in New York City. He says Verizon has started taking orders, with installations to start August 1. Verizon customer service reps indicate that early demand is “robust,” he reports.
Greenfield notes that Verizon will be offering a triple-play package - voice, video, data - at $69.99 for the first 6 months, moving up to $99.99 for 18 months for customers who agree to a two-year contract and who switch from TWC’s triple play offering. He notes that Time-Warner charges $119.95 for its lowest two-year triple play option.
Greenfield offered the following list of reasons to sell the stock:
- Consensus 2009 estimates are too high; he also thinks second-half 2008 numbers may be too aggressive.
- A “dramatic increase” in free-floating shares is likely coming with the spin-off, split-off or other transaction involving Time-Warner’s (TWX) 84% stake in the company.
- Verizon FiOS rollout likely to cause acceleration in basic sub losses in 2009.
- TWC likely to pursue an acquisitions strategy; possible targets include Charter (CHTR), Cablevision (CVC) and Cox.
- He contends that a planned investment in the Clearwire (CLWR)/Sprint (S) venture “is not a long-term solution for TWC” in wireless.
TWC Monday is down $1.15, or 4.1%, to $26.76.
