Whats the business everyone loves to hate? Cable television! True, we tend to
hate the service more than the stocks, but theres plenty to hate about some
cable stocks, too. Lets have a look at Cablevision (NYSE: CVC ), which gets tons
of bad press thanks to its (arguably poor) management. The company doesnt merely
own a cable system in the New York metropolitan area, it also owns an Internet
service, local news networks, NSG Varsity Channel, the newspaper Newsday , and
Star Community Publishing (weekly shopper publications). It operates the
Clearview Cinemas chain, and recently spun off a suite of cable networks into
another stock, AMC Networks (NASDAQ: AMCX ). Media empires can be quite
lucrative. Just ask Rupert Murdoch. There always will be people to entertain.
However, the trend toward Internet entertainment and streaming media is
providing an historic challenge to companies like Cablevision. With television
viewership migrating away from old-media outlets and the movie exhibition
business suffering from a decade of high single-digit annual drops in
admissions, theres a lot to be concerned about. And although satellite providers
are competing with cable networks, even that business has problems. Add to this
long-running complaints about the Dolan family, which controls Cablevision
through a special class of stock, and one wonders why Cablevision should even be
on any investors radar. One has to look at financials before rendering any final
decision. Stock analysts peeking out five years see annualized earnings growth
at an impressive 20%. At a stock price of $18 on FY 2011 earnings of $1.22, the
stock presently trades at a P/E of 15. Time Warner Cable (NYSE: TWC ) trades at
a 13 P/E, Comcast (NASDAQ: CMCSA ) at 17 and DirecTV (NASDAQ: DTV ) at 14, so
Cablevision is right in the middle. Cable companies carry a lot of debt, and
Cablevision is no exception. The company carries $630 million in cash, but is
offset by a colossal $10 billion in debt, at an interest rate of about 7.9%.
Trailing 12-month cash flow was $950 million, so the debt service is no problem.
The company also had seven times the amount of free cash flow necessary to pay
its 3.4% dividend. Conclusion I have two concerns with Cablevision. The first is
that the company has managed to push off some of its maturing debt from 2012 to
2015. Much of its remaining debt matures further out. Still, while cash flow is
great, one must keep an eye on the ever-advancing threat of Internet content.
The other issue is the Dolan family, known for its infighting. Placing a 20 P/E
on the company, with projected 2015 earnings of $2.64 per share gives us a price
target of $52. Even if one were to knock that price target back significantly on
the overall concerns, it is not inconceivable that Cablevision could double from
its present price. I think Cablevision is a buy for regular accounts, but Id be
cautious as a retirement investor. If you own it, hold it, but dont buy.
Lawrence Meyers does not own shares of Cablevision.
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