Cablevision Soars; Will the Dolans Try Again?

| About: Cablevision Systems (CVC)

Cablevision (NYSE:CVC) this morning demonstrated once again that the cable business is doing just fine in the face of intensifying competition from Verizon (NYSE:VZ) and AT&T (NYSE:T).

Cablevision posted Q2 revenue of $1.712 billion and profits of 33 cents a share, well ahead of the Street at $1.68 billion and 13 cents. Despite Verizon’s aggressive roll-out of its FiOS television service, Cablevision added 7,000 basic video customers in the quarter, while digital video customers increased 120,000, up 4.5% sequentially. High-speed data customers grew 52,000; the company’s digital voice customers increased 81,000, or 4.8%.

Craig Moffett, an analyst with Bernstein Research, says that the company “continues to write the playbook for the rest of the cable industry on how to complete with Verizon,” noting that the company’s cable numbers were better than expected for “the umpteenth consecutive time.” Moffett notes that in the two years since Verizon launched FiOS TV, Cablevision has actually gained net subscribers. “It is not an overstatement to say that - despite seeing head to head competition with Verizon in nearly a third of their footprint - the impact of the Verizon competition incursion is entirely indiscernible.” And he notes that Verizon’s FiOS subscriber growth is slowing.

Moffett repeated his view that Cablevision is a “compelling - albeit high risk - holding, with potentially enormous upside should management elect to realize the huge value of its portfolio.” He maintains an Outperform rating and $45 price target on the stock.

CVC today is up $2.49, or 11.7%, to $23.74.. (Nice move…but still well shy of the $36.26 a share offer the Dolan family offered last year to take the company private - a bid holders rejected as too low.)

Could the Dolan Family make yet another try to take Cablevision private?

You have to wonder, given comments Cablevision President Jim Dolan made on the company’s post-earnings conference call today.

“We have a strong desire to close the value gap between our operating performance and the market value of our debt and stock,” he said on the call. Here’s an excerpt of his remarks, with emphasis added:

While we are disappointed with equity valuations placed on our industry and especially Cablevision’s stock price, we are highly confident in the strength of our underlying business. This confidence is clearly supported by our consistently strong operating results, which the capital markets are not currently recognizing.

We have a strong desire to close the value gap between our operating performance and the market value of our debt and stock. We recognize that current capital market conditions may contribute significantly to this value gap. They [the board] are considering and actively exploring alternatives that may close this gap and want to assure our investors that we will be open to listening to their thoughts.

In this regard, the Company and I personally plan to spend more time communicating our compelling story to our investors and listening to their thoughts on our performance and prospects. I want to assure you that we are committed to growing shareholder value in tandem with responsibly managing our debt obligations during these challenging times for all of us.

Of course, any path we consider will be weighed against the backdrop of what is best for our business in the context of both the competitive landscape and changing capital markets in which we operate.

In response to an analyst’s question, Dolan declined to say exactly what steps the company might take. “There are some obvious potential movements that the Company could make, but we need to study them before we say much more about them,” he said.

One possibility which analysts asked about on the call was a spin-off of the company’s cable networks, which includes AMC, which is drawing a lot of attention right now for the red-hot show Mad Men. The company declined to respond to the question.