The rally in cable stocks has further to go, Craig Moffett of Bernstein Research asserts this morning.
In a research note, Moffett says he is raising his price targets for both Comcast (NASDAQ:CMCSA) and Cablevision (NYSE:CVC). He boosts his Comcast target to $44 from $40, and for Cablevision to $30 from $25. Moffett’s new targets are based on a valuation of 9x EBITDA, rather than his previous 8.5x target, “to parallel the rise in the broader market, and the roll-forward of our estimates, as well as - in the case of Cablevision - the expectations of a higher bid from the Dolan family.”
The Dolans recently offered to buyout the shares of Cablevision they don’t already own at $27 a share. Moffett says he doubts the special committee reviewing the offer is likely to accept that bid; he thinks it will take at least $30 a share to win them over. He says his sum-of-the-parts caluclation comes up with a value of $32 a share.
Moffett says that despite a strong rally, Comcast “remains at below-average valuations relative to the broader market.” He says Comcast has a free cash flow yield and about in line with the overall market - but he notes that Comcast is growing “much faster” than the broad market.
Meanwhile, Moffett thinks Comcast’s third quarter reuslts could show better-than-expected demand for the company’s high-speed data service, getting a boost from AOL’s switch to a “free” strategy, a broader rollout of Comcast’sVOIP service and increased seasonality in the business.
Moffett expects Comcast to report third quarter revenue of $6.48 billion and profits of 19 cents a share, with gains of 18,000 in basic subscribers, 386,000 in digital subscribers, 461,000 in high-speed data subscribers and 418,000 in VOIP subscribers.
For Cablevision, he sees revenue of $1.43 billion and a per-share loss of 15 cents. He sees gains of 17,000 in basic subs, 112,000 in digital, 66,000 in high-speed data and 118,000 in VOIP.