Time Warner Cable: CSFB Raises Estimates

Credit Suisse raised estimates for Time Warner Cable (TWC) this morning (maintained NEUTRAL). Revenue, EBITDA, and EPS estimates for 2008 to $17.28B, $6.29B, and $1.25 from previous estimates of $17.15B, $6.27B, and $1.10. Cited optimism surrounding recently acquired Dallas and LA operations and relatively limited exposure to Verizon:

We are more positive toward TWC’s fundamental outlook than we were last year, particularly relative to its peers based on: (1) The acquired Dallas and LA operations have now turned the corner and are beginning to show more positive RGU trends, (2) TWC has only 30% exposure to Verizon, less than Comcast and CVC, and (3) The plant will be 100% “HD-ready” by YE08/early 2009 using mostly switched digital technology, but also by going all-digital in certain areas.

Somewhat offsetting these positive aspects of the story, the following factors are the reason for maintaining our Neutral rating: (1) The potential distribution of TWX’s stake in TWC, which we believe will create technical pressure on the stock price (and perhaps a buying opportunity), (2) We anticipate some commitment of capital to wireless in order to participate in the nascent mobile broadband market, and (3) Valuation combined with a low probability of positive estimate revisions. We view the probability of positive estimate revisions from here as low based on: (1) AT&T’s ramp up of U-verse net additions this year, (2) Verizon’s anticipated launch of FIOS TV in New York City, and (3) Limited margin upside this year due to increased marketing spend, and lower incremental product margins in video and broadband.

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