Some people love to hate Time Warner Cable Inc (TWC). But regardless of your views on its customer service, investors simply love TWC stock.
And for good reason. It just reported first-quarter earnings and they came in well above analysts’ expectations. Earnings growth was up 9.3% over last year, and earnings per share came in at $1.81. Analysts were expecting $1.74. Revenue was also up from the year-ago number.
Along with that news, the Federal Communications Commission and the U.S. Department of Justice have given TWC’s merger with Charter Communications, Inc. (CHTR) the green light. This merger will form the No. 2 cable company in the US, behind Comcast Corporation (CMCSA).
At this point, Time Warner Cable is one of the major multi-media players in the U.S. It has operations in everything in every conceivable genre, from television to internet, to publishing and music. Brands include CNN, HBO, CineMax, Fortune, People, New Line Cinema and scores of others.
And that means TWC is a major content player. This is the gold standard now, as online and cable television begin to merge. If you have content to sell, you are a much stronger player than cable companies that only provide service.
Content is where the real money is made.
How CHTR Deal Boosts TWC Stock
The Charter Communications deal is partial shares and cash for each share of TWC stock. That means the price of the deal fluctuates as the prices of the stocks move. And both have moved higher since this deal was made late last year.
This whole drama has been playing out for almost 2 years at this point. First, CMCSA wanted to buy Time Warner Cable to make the nation’s largest cable provider. But after long negotiations, the telecom powers that be didn’t precisely shoot the deal down, but they put conditions on the deal that would have made it difficult to structure without adding more risk than reward.
CHTR was part of the deal, getting some properties from the two rivals to help grease the skids on the deal. But it wasn’t meant to be.
That’s when Charter Communications stepped in with its own bid for Time Warner Cable. This time, it wasn’t No. 1 CMCSA swallowing No. 2 TWC; it was No. 4 CHTR buying No. 2 TWC. That makes a world of difference in Washington’s regulatory circles.
And that is the deal we have today. CHTR also got the go-ahead to buy Bright House Networks, a smaller carrier as well.
The deal now puts the Time Warner Cable brands under the roof of a growing cable and internet provider. And CHTR now has content it can provide at a fraction of the cost of licensing it from TWC. Now it gets TWC’s revenue stream and it gets all its subscription fees.
What’s more, since both are going gangbusters, the price that Charter Communications is going to pay for Time Warner Cable continues to climb. Buy TWC stock and let it ride when the shares are converted to CHTR.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
