Thursday March 8, 3:12 pm Eastern Time
Cable companies proving fireproof in economic downturn
(UPDATE: Adds AT&T, AOL background in paragraph 15, stock prices in paragraphs 8, 16-18)
By Patrick Markey
NEW YORK, March 8 (Reuters) - Amid the year-long bloodletting in technology stocks that took root last spring, one sector -- largely overlooked in the market's technophilia ahead of the crash -- has thrived above the fray.
Shares in the top U.S. independent cable TV companies, such as Cablevision Systems Corp. (NYSE:CVC - news), Cox Communications Inc. (NYSE:COX - news) and Comcast Corp. (NasdaqNM:CMCSA - news)(Nasdaq:CMSCK - news), have soared as Nasdaq's heavyweights -- Cisco Systems Inc. (NasdaqNM:CSCO - news), Microsoft Corp. (NasdaqNM:MSFT - news) and Yahoo! Inc. (NasdaqNM:YHOO - news) to name but a few -- have tumbled.
Word is out. Cable stocks are in.
``I've rarely seen a group where the planets really came into alignment at one time the way they have for the major cable MSOs at the moment,'' said Dain Rauscher Wessels analyst David Lee Smith. ``I don't see it changing in the near term.''
Market watchers say investors have found favor in cable TV companies, especially in the softening economic climate.
Dismissed as a backwater collection of yesteryear companies during the height of the high-tech rush, seven of the largest U.S. cable firms have outperformed the Nasdaq composite index since the gauge's 57 percent plunge from its all-time high last March. Stocks in four of those market leaders are up more than 17 percent from a year ago.
Seeking security during hard times, investors see them as a tech safe haven.
In late-afternoon trading, shares of Cablevision rose 87 cents to $82.45, while Cox fell 54 cents to $43.09, both on the New York Stock Exchange. Comcast class A shares slid 9/16 to $44-11/16 on Nasdaq.
CABLE BUSINESSES RESISTANT TO TECH WOES
Cable companies, which look to subscriptions for cash flow, are proving resistant to the financial woes hitting other the tech shares, analysts say, as they suffer less from advertising declines or a falloff in user numbers.
``Cable is very predictable, it's 40 bucks times three months, times X number of subs,'' said Tom Eagan, an analyst at UBS Warburg, referring to the cable subscribers.
``We've seen it before in '81, and '74. Cable operations don't get hurt. People don't go on vacations, they don't go into restaurants, but they don't disconnect their cable.''
Shares of cable provider Cablevision, which serves 3.2 million cable customers in the New York area, are up more than 37 percent, since last spring.
Microsoft co-founder Paul Allen's Charter Communications Inc. (NasdaqNM:CHTR - news), the St. Louis cable provider serving more than 6 million subscribers, is up more than 36 percent.
``The cable sector as a whole and in the past has been fairly recession resistant, and we continue to believe we'll continue to do well,'' said Mary Jo Moehle, Charter Communications director of investor relations.
Last month, Charter, the No. 4 U.S. cable TV company, reported a nearly 30 percent rise in fourth-quarter cash flow, saying it expects faster growth at its cable business this year.
Charter's class A shares rose 7/16 to $23-1/2 on Nasdaq.
The parent companies of the nation's top two cable operators -- AT&T Broadband and Time Warner Cable -- have not enjoyed the stock bounce their smaller rivals have seen, however. Long distance telephone provider AT&T Corp. (NYSE:T - news) and Internet media tital AOL Time Warner Inc. (NYSE:AOL - news) have been caught amid the broader weakness in the technology and telecom sectors and, in the case of AT&T, by internal operating difficulties.
AT&T's stock edged down 33 cents to $23.52, while AOL Time Warner edged down 31 cents to $44.99, both on the New York Stock Exchange at mid-afternoon.
MORE VISUAL BANG FOR THE BUCK
Analysts say cable companies have also proven adept at adding to subscription bases and cash flow by providing existing viewers with more visual bang for their buck.
Advanced services such as digital video, which compresses information allowing more channels, video-on-demand, interactive television and high-speed data will bolster the cable sector's position, they say.
Basic demand will not decrease for cable services, and demand will be robust for higher-priced services, such as high-speed data and digital cable, said ABN AMRO Inc. analyst John Martin.
Charter expects its 15 percent of market penetration for digital cable to double in 2001 to 30 percent, company representatives said.
``It's the launch pad for the rest of our advanced services, for video on demand, for interactive TV, Internet through the TV,'' Charter's Moehle said.
Smith of Dain Rauscher Wessels said demand for home entertainment and new interactive functions will benefit cable providers such as Comcast as the new technology changes how viewers look at TV for the first time in 50 years.
``There are a lot of opportunities ahead for this group and the group is doing very well with what it has today,'' Smith said. ``Capital expenditures will be declining at a time when cash-flow per subscriber increases as they roll out a new bag of tricks over the next two or three years.'' |
