Are Cable-Cutting Fears Overblown Or Legitimate?
This is the question Moffett Nathanson analyst Craig Moffett explored in a note on Wednesday. According to the analyst, recent data may suggest that the cord cutting trend is over-exaggerated and now is a good time to buy Cable stocks as he upgraded the entire sector to Overweight from Equal Weight.
"Over the past six months, the cable companies have grown; they have grown subscribers, they have grown revenues, and they have grown earnings," Moffett wrote. "The broader market has not. Six months have left the two largest cable operators materially cheaper relative to the broader market, whether measured by trailing or by forward multiples."
Moffett was referring to Comcast Corporation (NASDAQ: CMCSA) and Charter Communications, Inc. (NASDAQ: CHTR), whose stocks "have done a whole lot of nuthin' this year" on fears of cord-cutting and regulatory constraints on broadband pricing.
Moffett continued that the Cable industry is not only "holding its own," it is "dramatically improving" in video even as the sector has trended down. In fact, during the most recent earning season, cable operators posted "dramatically improved" results versus both the TelCos and Satellite.
Moffett added that AT&T Inc. (NYSE: T) is now expected to take a "more aggressive" stance and will "move heaven and Earth" to deliver DirecTV U.S. subscriber growth. The company may do so with an aggressive promotional stance as it is already offering "huge bounties" to cross-sell wireless to DirecTV subscribers with the same expected in the other direction.
Moffett finally suggested that Cable's advantages are "becoming clearer" as it is become more evident that it is "difficult" to compile a compelling OTT offer to replace TV. The analyst argued that Dish's Sling product (which he characterized as one of the more compelling OTT platforms) saw its subscriber growth decelerate "strongly" in the second quarter to just 70,000 incremental paid Sling subscribers. Meanwhile, Apple Inc. (NASDAQ: AAPL)'s potential OTT product may be delayed as well.
Bottom line, "time heals all wounds" as the sentiment surrounding the Cable sector has "turned more sober" over the past six months.
Shares of Comcast were upgraded to Buy from Neutral with an unchanged $67 price target.
Shares of Charter were upgraded to Buy from Neutral with a price target raised to $210 from a previous $195.
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