Tags: Cablevision | changing | market | CVC

Cablevision Fighting Changing Market, Competitors

By    |   Monday, 09 April 2012 12:11 PM

Cablevision Systems (CVC) is running uphill in a snowstorm these days, fighting a rapidly changing market, weak growth and tough competitors in unfamiliar businesses or ones creating new businesses from scratch that CVC wants to enter. Whether it can successfully convert its business model remains to be seen, a fact which has analysts doubting.

Cablevision is a family-owned cable TV provider with additional businesses in programming and high-speed Internet and phone services. It serves 3.25 million cable customers around metro New York and in four Western states.

The company also owns a cable ad sales division, the Long Island newspaper Newsday, the Clearview Cinemas movie chain, and local TV news stations.

In December 2010, CVC used equity and debt to buy Bresnan Broadband Holdings for approximately $1.36 billion. Cablevision's liabilities total $2.2 billion in senior notes, not counting $754 million in senior notes held by Newsday.

Cablevision, like many in its sector, is trying to make the jump from providing solely video content to value-added Internet services and telephone via cable, essentially turning into a telecom focused on businesses, schools, hospital systems, and city governments.

By the end of 2011, Cablevision said that it had connected more than 5,000 buildings in metro New York to its Optimum Lightpath fiber-optic network. As such, it competes in New York against national telecom giants, including AT&T (T) and Verizon (VZ).

On the content side, CVC competes with satellite providers as well. Crowding in the market hurts. Total Cablevision subscribers is only slightly higher than the company reported in 2006, for instance.

Meanwhile, Cablevision must face up to the continuing trend of “cord cutting,” wherein subscribers simply cease to buy cable access in favor or free or cheaper content available over the Internet, such as the streaming services offered by Netflix (NFLX), Hulu and others.

Then there’s the problem of paying for all that change. “We will need to raise significant amounts of funding over the next several years to fund capital expenditures, repay existing obligations and meet other obligations and the failure to do so successfully could adversely affect our business,” CVC management warns in a recent filing. “We may also engage in extraordinary transactions that involve the incurrence of large amounts of debt.”

Cablevision Systems is a $3.82 billion market cap stock with a 12-month trailing P/E ratio of 16.67 vs. a media sector average of 15.72. Its five-year price-to-earnings-growth (PEG) ratio is 1.01 against a sector average of 1.78.

Project earnings-per-share growth in the coming year is 23.91 percent, slightly higher than the sector.

Cord cutting

Cablevision is rated very poorly by the major financial firms, with multiple underperform ratings and just two buy calls. Standard & Poor’s, Merrill Lynch, and JP Morgan all have below-market expectations. Only RBC Capital Markets is in the outperform camp.

“Despite mildly encouraging fourth quarter subscriber growth, we think CVC's mixed 2011 results underscored intensifying pay TV competition — amid some concerns with ‘cord cutting’ — and continued weakness in household formation,” S&P analysts wrote recently

“Meanwhile, with the upside from the highly leveraged Bresnan acquisition still far from being realized, in our view, recent executive departures have rekindled concerns over governance and management succession for the family-controlled company, with CEO James Dolan recently offering no contrary indications.”

Cablevision Systems next reports on May 3.

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