Cable TV Gets an Upgrade on Wall Street

Illustration by: Paweł Jońca

Deal values reached $76 billion in the U.S. in the second quarter, up from $39 billion in the first quarter, led, of course, by a major cable merger.

Two weeks after executives at Walt Disney, Viacom and others raised the specter of cord-cutting as an actual problem as opposed to a theoretical one for the TV industry, one Wall Street firm has upgraded the entire cable industry.

"For all the hand-wringing around the pay TV industry's worst-ever subscriber declines in recent weeks, the cable operators didn't just fare relatively well ... they fared genuinely well, posting dramatically improved results versus both the telcos and satellite," said Craig Moffett of MoffettNathanson in upgrading the sector on Wednesday.

Beyond his upgrade of the sector to "overweight," he specifically upgraded Charter Communications and Comcast to "buy," with a $210 and $67 price target, respectively. Charter closed Wednesday at $188.20 and Comcast closed at $59.92.

Moffett's upgrade comes six months after he downgraded the sector, arguing back then that cord-cutting wasn't being factored into stock prices enough, nor was President Barack Obama's desire to let the FCC further regulate the Internet. 

In his upgrade note, he says U.S. cable video subscribers have declined 1.9 percent year-over-year but cable broadband Internet subscribers have increased 6.1 percent.

"Our concerns six months ago centered on cord-cutting — we believed that the market was oddly complacent; cord-cutting was nowhere in the debate — and that investors were too dismissive of the regulatory risks around broadband pricing," Nathanson wrote in his upgrade note Wednesday. "Not much has happened one way or the other on the regulatory front, but no one can make the argument that cord-cutting risk is now anything but front and center."

Moffett's upgrade came the same day PricewaterhouseCoopers issued its quarterly report on mergers and acquisitions in the media and entertainment industries. Deal values reached $76 billion in the U.S. in the second quarter, up from $39 billion in the first quarter. The dominant deal was Charter's planned $56 billion acquisition of Time Warner Cable.

"With shareholder pressure on companies to deliver ongoing growth, we anticipate that M&A activity will continue to be robust as we enter the second half of the year," PwC said on Wednesday.

The research and accounting firm broke entertainment and media into 10 sub-sectors and "cable" led all others in deal value, with five deals valued at $63 billion, but "advertising and marketing" led in terms of deal volume, with 57 deals valued at $1.2 billion.

Email: Paul.Bond@THR.com

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