Time Warner Cable (TWC) had a solid Q1: adjusted EPS of $0.24 on $4.2 billion in revenue vs. consensus of $0.22 and $4.16. Sub metrics also strong, with net video sub adds +55,000 vs. estimates of -22,000.
TWC also benefitted from a big marketing spend, adding 261,000 digital video subscribers, 304,000 high-speed internet subscribers, and 208,000 digital phone subscribers. The robust growth figures prompted Goldman to raise its estimates and target price:
We are increasing our Time Warner Cable EPS estimates for 2008-2010 by 2% to reflect higher sub estimates and lower interest, offset somewhat by higher marketing and employee costs. As a result of our higher estimates, we are increasing our price target to $31 (from $29)…
We expect 2Q2008 EBITDA growth to be only slightly better than in 1Q2008 due to higher marketing and pension costs and lower ad revenue. This implies that growth in 2H2008 will have to be at least low double digits to achieve the low end of guidance. Our 2008/2009/2010 EPS estimates increase to $1.34/$1.66/$2.02, up from $1,28/$1.62/$2.01.
We continue to rate TWC shares Neutral with less favourable risk reward upside vs our Buy rated stocks. While we are encouraged by TWC’s strong FCF guidance and its ability to stimulate sub growth through discretionary marketing, we believe TWC shares will remain somewhat range bound as Pay TV competition will likely continue to intensify within the backdrop of a slowing economic environment for 2008.
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