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Time Warner Cable (TWC) shares popped after word got out that Charter Communications (CHTR) is getting serious about trying to buy out the larger cable operator. But the fact remains that Time Warner did lose 306,000 cable subscribers last quarter. Can TWC turn things around from here? Is now the time to buy? Find out here.
Time Warner Cable is a name you’re probably familiar with. It is the second-largest cable operator in the U.S., offering the usual services of video, high-speed data and voice over its broadband cable systems to residential and business customers. It serves 15 million customers in the Carolinas, New York, Ohio, Southern California and Texas.
Time Warner Cable pays out a nice 2.1% annual dividend yield—the third highest in the CATV Systems industry. The stock goes ex-dividend on Tuesday, November 26. Shareholders of record will receive 65 cents per share on December 16.
Word on the Street is that Charter is close to securing funds for a takeover bid for Time Warner Cable. According to the Wall Street Journal, Charter Communications is working with banks and sovereign wealth funds on a multi-billion debt package to finance a deal that would appeal to TWC shareholders. This would be a big deal for Charter.
At time of writing this, Time Warner Cable has a market value of more than $34 billion, over double Charter Communication’s $13 billion market value. Time Warner also has about triple the number of U.S video subscribers. TWC shareholders clearly favor the deal as shares popped on Friday morning following the announcement.
Regardless of whether the merger pans out, the company’s future outlook is solid. To start, Time Warner is on the cusp of an executive shakeup. At the end of this year, CEO Glenn Britt retires and will be replaced by current COO Rob Marcus. This coincides with Time Warner’s transition from a traditional cable company to one more focused on its internet and voice services. Over the past year, Time Warner has doubled the number of its residential high-speed data subscribers to 719,000. The company has invested $2.4 billion in infrastructure and business services line extensions, so it’s clearly working hard to attract new subscribers with even faster data rates.
Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. For much of the past year, this Conservatively-ranked stock has remained in buy territory. However, this fall TWC shares have slipped in and out of a C-rating due to fluctuations in buying pressure.
Currently, TWC receives a B for its Quantitative Grade (a good measure of the stock’s risk-to-return ratio) and I expect that the latest merger buzz will result in persistent institutional buying pressure. On the fundamentals side, Time Warner Cable could stand to firm up its operating margin growth and earnings growth, which are both D-rated.
Meanwhile, the cable company receives strong ratings on cash flow (B) and return on equity (A). TWC receives a C for its Fundamental Grade.
As of this post I consider TWC a B-rated Buy.
Would you like to check the fundamentals backing up one of your stocks? For more stock grades, please visit my Portfolio Grader website!