Following the second-quarter 2012 earnings announcement on July 19, 2012, most of the analysts covering Time Warner Cable Inc. (TWC) have made mixed estimate revisions on the stock. The brokers’ outlook is based on good show from the data subscriber business, but they remain concerned about the continuous loss of residential video customers.
Second Quarter Highlights
On a GAAP basis, quarterly net income from continuing operations was $452 million or $1.43 per share, compared with $420 million or $1.24 per share in the year-ago quarter. Adjusted EPS came in at $1.48, handily beating the Zacks Consensus Estimate of $1.38.
Quarterly total revenue of $5,404 million was up 9.3% year over year, surpassing the Zacks Consensus Estimate of $5,367 million. Alongside, operating income before depreciation and amortization (OIBDA) increased 10.3% year over year to $2,011 million.
Agreements of Analysts
Of the 18 analysts covering the stock in the last 7 days, one analyst revised the estimate upward while two have made downward revisions for the third quarter of 2012. Similarly, of the 17 analysts covering the stock in the last 7 days, two have revised the estimates upward while one has moved in the opposite direction for the fourth quarter of 2012.
Over the past 30 days, seven out of 18 analysts covering the stock have downgraded the estimates while six have revised the estimates upward for the third quarter of 2012. Similarly, for the fourth quarter of 2012, nine out of the 17 analysts have reduced the estimates while four have revised the estimates upward.
For 2012, out of the 20 analysts covering the stock four have revised their estimates upward while none has revised it downward over the last 7 days. Likewise, for 2013, out of the 21 analysts covering the stock, two have revised the estimates upward while one has moved in the opposite direction for the given period.
In the last 30 days for 2012, 10 out of the 20 analysts covering the stock have increased their estimates while five have reduced their estimates. Similarly, for 2013, out of the 21 analysts covering the stock, eight have increased the estimates while nine have moved in the opposite direction.
Currently, the Zacks Consensus Estimate for the third quarter of 2012 is pegged at $1.39. The projected annual growth is 25.23%. For the fourth quarter of 2012, the Zacks Consensus Estimate of $1.58 indicates an annualized growth of 13.97%.
Magnitude of Estimate Revisions
During the last 7 days, the current Zacks Consensus Estimates for the third quarter of 2012 is in line with the Zacks Consensus Estimate of $1.39 while for the fourth quarter of 2012 it has reduced by four cents from the previous estimates of $1.62, respectively.
During the last 30 days, the current Zacks Consensus Estimate for the third quarter and fourth quarter of 2012 is 2 cents below the earlier estimate of $1.41 and $1.60, respectively.
For 2012, the current Zacks Consensus Estimate is one cent ahead of the prior estimate of $5.62, while for 2013 the current Zacks Consensus Estimate is in line with the prior estimate of $6.85 in the last 7 days. However, the Zacks Consensus Estimate for 2012 is 2 cents ahead of the earlier estimate of $5.61 in the last 30 days. Similarly, for 2013, the current Zacks Consensus Estimate is 5 cents below the earlier estimate of $6.90.
Earnings Surprises
The company has outperformed the Zacks Consensus Estimates in three out of the four previous quarters. In the last quarter, Time Warner Cable reported that earnings were ahead by 10 cents or 7.25%.
The ongoing quarter of 2012 contains a downside risk of 0.72% (essentially a proxy for future earnings surprises) while no surprises are expected for the fourth quarter of 2012. However, 2012 and 2013 contain a 0.18% and 0.58% downside risk respectively.
Our Recommendation
We believe that Time Warner cable’s significant subscriber growth for high speed internet and digital phone services, decision to expand its Wi-Fi network and its new strategic move to consolidate its Cable TV business will act as positive catalysts going ahead.
However, bleak macro economic situation, stiff competition from rival Comcast Corporation (CMCSA) along with telecom carriers like Verizon Communication Inc. (VZ) and AT&T Inc. (T) and saturation of the multi-channel video market in the U.S. will create significant headwind for the Company.
We maintain our long-term Neutral recommendation on Time Warner Cable Inc. Currently, TWC has a Zacks #3 Rank, implying a short-term Hold rating on the stock.
About Earnings Estimate Scorecard
As a PhD from MIT, Len Zacks proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at: http://www.zacks.com/education/
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