In an effort to bring the best 4G service to its customers, Verizon (NYSE: VZ )
stepped up Tuesday, announcing it was buying $3.6 billion in wireless spectrum
from a consortium that includes Comcast (NASDAQ: CMCSA ) and Time Warner Cable
(NYSE: TWC ). Comcast will receive the lions share of the proceeds, estimated to
be $2.3 billion. Despite the windfall, I recommend investors sell Comcast and
buy Cablevision (NYSE: CVC ) instead. Heres why. Wireless As part of the
spectrum sale, Comcast and Time Warner Cable announced they were winding down
their Clearwire cable-branded 4G mobile broadband service over the next six
months, opting instead to resell Verizons wireless products nationally. Stifel
Nicolauss Christopher King liked the decision and raised CMCSA stock from hold
to buy with a $32 price target. Kings rationale is it takes Comcast out of the
wireless competition while filling gaps in its product line. Maybe so, but I
doubt very much you would see this type of deal in Canada between BCE (NYSE: BCE
) and Rogers Communications (NYSE: RCI ), which are mortal enemies. Unless Im
missing something, once the deal is done and Comcast is in bed with Verizon, its
going to be awfully difficult extricating itself from the relationship. While
Comcast gets a 64% return on its five-year spectrum investment, in the long
term, it loses its independence when it comes to wireless. That short-term gain
could come back to bite them in the you-know-where. Well see. Apples and Oranges
Comparing Comcast to Cablevision is like comparing an Aston Martin to a Honda.
They are two completely different beasts. However, given Comcasts withdrawal
from the Clearwire wireless brand, CMSCA and CVC are not as dissimilar today as
they were a month ago. Both are cable companies offering TV, Internet and voice.
Both also own various media properties. The only difference is size. Otherwise,
they are two very similar businesses one whose stock is worth 55% less today
than a year ago (CVC) and another thats up almost 12% in the same 52 weeks
(CMCSA). The question is whether this sizeable gap in performance is warranted.
For Sale Mark Boyar, head of Boyar Asset Management, owns Cablevision stock. He
believes the Dolan family, which controls 71% of the votes, is positioning the
company to be sold. With the exception of a few properties like Newsday and
Clearview Cinemas, its more of a pure-play cable company since spinning off
Madison Square Garden (NYSE: MSG ) in 2010 and AMC Networks (NASDAQ: AMCX ) in
June. Boyar believes Cablevision could sell for as much as $30 per share, given
free cash flow in 2011 will be more than $2 per share. Even if the Dolans decide
to hang on to the company, its definitely cheap at 6.9 times free cash flow as
of Tuesday. For comparison, Comcast trades at 9.7 times FCF and Time Warner
Cable at 8.4 times. Of the two bigger rivals, Time Warner Cable likely would be
more interested because its stranglehold in New York City would mesh nicely with
Cablevisions presence on the outskirts of town. The threat of a sale should at
the very least keep the stock from falling much below where it is today. Bottom
Line Cablevisions capital requirements are diminishing. Although CVC has had a
disappointing year, free cash flow remains strong. With a dividend yield of 4%,
youre being paid to own its stock until earnings improve or someone like Time
Warner Cable comes along and scoops it up. That same scenario isnt playing out
at Comcast. For this reason, Cablevisions upside appears greater. As of this
writing, Will Ashworth did not own a position in any of the stocks named here.
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