Cablevision vs. Charter: Who Wins the Subscription-TV Battle?

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Football is back, MTV is launching four new reality series and the whole world is waiting to find out how CBS will replace Charlie Sheen with Ashton Kutcher on Monday night. But even though U.S. consumers still are enamored with TV programming, they’re becoming less willing to pay for it. And that makes for a challenging revenue environment for cable companies such as Comcast (NASDAQ:CMCSA), Time Warner (NYSE:TWX), Charter (NASDAQ:CHTR) and Cablevision (NYSE:CVC).

The bad news for all subscription TV companies — including satellite providers like DirectTV (NASDAQ:DTV) and Dish Network (NASDAQ:DISH) — is that the market is now extremely saturated: 85% of all homes have some sort of pay TV service. What’s worse, a study last week by IHS Suppli found that consumers are unplugging their sets in favor of the Web: video subscription services fell by almost 370,000 homes in the second quarter, to 100.6 million, down from 101 million in the first quarter of this year.

So does that mean cable stocks are starting to circle the drain? No. Despite the trend of “cord-cutting” — dumping cable for Internet video — most subscribers will hang in there. And even in a worst-case scenario, where cable loses 10% of its video subscriber base by 2015, IHS believes operators will retain strong operating margins from their high-speed data and voice-over Internet protocol (VOIP) telephone offerings.

In this market, the 800-pound gorillas are Comcast, with 22.8 million subscribers, and Time Warner, with 12.4 million (satellite providers DirecTV and Dish hold 19.4 million and 14.2 million, respectively). Verizon’s FIOS service has signed up about 3.7 million homes.

Because the industry giants get so much attention, it’s easy to overlook the value proposition of the market’s second-tier players like Charter and Cablevision. Here’s how the two stocks stack up for investors:

Subscribers

According to subscription data by the National Cable & Telecommunications Association, Charter boasts 4,497,000 homes compared to Cablevision’s 3,306,000.

Fundamentals

Charter has a market cap of $5.43 billion. At $49.34, Charter is trading more than 19% below its 52-week high of $61.15, which it hit in April. CHTR has a price-to-earnings growth ratio of negative 5.1, indicating that it’s losing money. Average trading volume is very low compared to the other stocks in this sector: a hair over 615,000 a day, with under 250,000 trading last Friday. The company has total cash of $166.million versus total debt of $12.69 billion.

Cablevision has a comparable market cap of $5.09 billion. CVC set a new 52-week low of $15.40 on Sept. 12. At $17.86, the company has recovered nearly 16% so far. Cablevision has a PEG ratio of 0.69, indicating that the stock is undervalued. Its average daily volume is nearly 3.8 million shares, with 3.6 million shares changing hands on Friday. CVC has total cash of $356.85 million versus total debt of $10.82 billion. The stock has reliably paid a dividend since the end of 2008; the current yield is 3.40%.

The Edge

Charter has more subscribers, but has struggled to sell off some cable systems — most notably its Los Angeles system — because potential bidders felt the properties were priced too high. Charter recently penned a deal to sell AT&T advertising spots on more than 50 cable networks.

For Cablevision, it’s all about the programming. Last week, Cablevision shares jumped on news that it had inked a deal with Time Warner that allows its subscribers to watch Turner Networks programming on their iPhones, iPads and other Internet-enabled devices. At a Bank of America conference last week, Chief Operating Officer Tom Rutledge said he’d love to sell Netflix (NASDAQ:NFLX) on his cable system. No deal is in the works yet, but CVC’s Optimum Link product already allows subscribers to shuttle Netflix content from their PCs to converter boxes for viewing on their TVs.

Winner

Cablevision. With stronger financials, a programming-focused business model and a dividend to boot, this stock may be one of the few bargains in a tough market.

As of this writing, Susan J. Aluise did not hold a position in any of the shares named here. 


Article printed from InvestorPlace Media, https://investorplace.com/2011/09/cablevision-vs-charter-cvc-chtr-twx-cvc/.

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