M&A Is Cable One's Most Important Catalyst, B Riley FBR Says In Bullish Initiation

Cable One Inc CABO made the right decision in 2012 to shift its focus away from pay TV bundles to high-margin residential internet and business service offerings, according to B. Riley FBR. 

The Analyst

Analyst Zack Silver initiated coverage of Cable One with a Buy rating and 12-month price target of $840.

The Thesis

Cable One's focus on higher-margin broadband internet and business services has led to an increase in its adjusted EBITDA margins past its peer group, Silver said in the initiation note. 

This is despite revenue performance remaining tepid, as the company shifted focus away from higher-ARPU video offerings, which experienced margin pressure due to higher content cost, the analyst said.

Over time, the analyst said he expects the overall adjusted EBITDA margins to approach the margin levels of internet and business services.

Cable One's strategy of focusing on rural markets has helped it avoid competitive pressure, Silver said. The company's top seven states by customer have below-national average penetration and therefore represent a growth opportunity, he said. 

"We believe Cable One's top priority internally is finding more rural cable systems to acquire."

Cable One's shares do not price in another accretive acquisition, Silver said, although the analyst said one is highly likely. This is the single most important catalyst for the stock, the analyst said, adding that Cable One could itself be an acquisition target. 

The Price Action

Cable One shares were trading up 2.26 percent at the time of publication Friday at $733.01. 

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