« Tom Cruise Falls Short But Regal Still Looks Good | Main | Cablevision Comes Through: Stick With Comcast »

May 08, 2006

Cablevision: March 2006 Quarterly Earnings Preview

Cablevision (CVC) should report another strong quarter before the open on Tuesday. Analyst are estimated growth in the mid to upper teens for revenues and EBITDA in the company's Telecom division. Consolidate growth will be a little less as the company’s programming assets and New York City properties will grow at a modestly slower rate.

Growth at CVC leads the cable industry due to the company’s advanced network and early adoption of cable telephony. At yearend, about 24% of CVC's customers were taking VOIP telephony, by far the highest level in the industry. CVC leads the way in selling the triple play bundle of TV/high speed data/voice and is seeing the financial benefits. Analysts are expecting CVC to pull in about $103 of revenue per user this quarter vs. $91 a year ago, a gain of 13%. With subscribers growing in all parts of the triple play, it is no wonder that revenue and EBITDA can gain more than 15% year-over-year. The company has guided to mid-teens revenue and EBITDA guidance for all of 2006 so 1Q strength will not be isolated....

Using a cross-section of several of my favorite analysts including Aryeh Bourkoff of UBS, Jessica Reif of Merrill Lynch, and Matthew Harrigan of Janco, here are some key measures to watch for: telecom revenues of $975 million, telecom EBITDA of $380 million, basic sub adds of 15,000, digital TV sub adds of 95,000, high speed data adds of 80,000, VOIP adds of 120,000. Cable capital spending is expected to be near $170 million.

ARPU trends will also be closely watched. So far, the gains are coming from more customers taking more products but within specific products like video and high speed data, year-over-year ARPU levels could be slightly lower. I am not all that concerned because the declines are coming form customers getting small discounts for taking the whole bundle. In the long run, it is much better to capture these customers now at a small discount before Verizon rolls out enough fiber to do some damage.

With the $10 special dividend finally paid, it is possible that the Rainbow and MSG assets may get a little more attention as adjusted for debt they are now a more important of CVC's value equation. MSG results are lumpy due to the sports teams but Rainbow's national cable networks including IFC, WE, and AMC should produce mid single digit gains in revenue and EBITDA.

Overall, CVC is a leveraged play on a rebound in cable valuations. The company has a debt to EBITDA ratio of greater than 6 vs. around 2 times for Comcast (CMCSA/K). Aryeh Bourkoff calculates that each EBITDA multiple point is worth about 27% of CVC's stock price vs. 14% for CMCSA. So if you believe my rants that cable has further upside as the industry continues to growth at double digit rates through 2006 and 2007 then CVC is your stock. If you think growth will slow and the bear case will re-emerge, CVC is your short.

Posted by Steve Birenberg at May 8, 2006 04:15 PM in CVC