Why Jefferies Is Upgrading Time Warner Cable

In a report published Thursday, Jefferies analysts upgraded the rating on Time Warner Cable Inc TWC from Hold to Buy, while raising the price target from $190 to $193. The analysts cited optionality favors upside as the reason for the upward revisions. In the report Jefferies noted, "We see meaningful upside from the current TWC/CMCSA deal (though approval is in question). Using the 2.875x exchange ratio, the shares are worth ~$169 at the current CMCSA price, this equates to $193 on our recently updated $67 CMCSA standalone price target." The analysts expect the share price of Comcast Corporation CMCSA to swiftly climb towards the target price, if the deal is approved, which translates into the "new target for TWC shares." In case the Comcast deal does not gain regulatory approval, there could be "renewed interest" in Time Warner Cable from Charter Communications, Inc. CHTR. "Such a transaction would face less risk (execution/regulatory), and we expect TWC would seek a significant premium over CHTR's prior offer," the report mentioned. The analysts believe that a deal with Charter Communications can attain more significant FCF and share accretion than the currently contemplated transaction with Comcast. "It's possible that in a CMCSA deal break scenario, TWC would seek to return up to ~$7bn of available cash to shareholders before, or as part of, re-engaging CHTR," the analysts added.