Canaccord Genuity Media Analyst Thomas Eagan remains optimistic on the PayTV sector (and most of its players) due to his favorable interpretation of several factors: Healthy fundamentals, continued capital allocation to shareholders and largely benign regulatory and M&A environments.
Despite the 48% average appreciation YTD for Comcast and Time Warner Cable (TWC), Eagan remains bullish on both as he expects continued multiple expansion given the aforementioned factors. He is also increasing his price targets on both stocks. And should the recent positive housing indicators continue, Eagan believes we could see material improvement in customer gains.
DirecTV’s 22% gain YTD trails most multiple service operators because of concerns with both the U.S. and Latin American operations. While true that DTV reported a messy 2Q12, Eagan expects improvement in 4Q12 results. Notably, DTV’s multiple is the only one in the group that hasn’t increased year-over-year.
Eagan expects most PayTV providers will generate mid-single-digit U.S. operating cash flow growth driven by 1% customer gains, 3-5% average revenue per user growth and slightly improving margins. He expects 2H12 and FY13 customer growth in the PayTV ecosystem as the providers benefit from several factors, including increased difficulty among over-the-top players in sourcing top programming.
Comcast (CMCSA : NASDAQ : US$35.79), Net Change: 0.67, % Change: 1.89%, Volume: 12,561,424
DIRECTV (DTV : NASDAQ : US$52.00), Net Change: -0.01, % Change: -0.01%, Volume: 6,330,101