Program varies on cable sector

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NEW YORK -- It's a tale of the two ends of the cable spectrum.

Investors have shown a continued appetite for most publicly traded cable stocks during the first weeks of the new year despite a strong run of all sector stocks in 2006.

Indeed, many on Wall Street predict this will be another good year for the big blue-chip cable players, including Time Warner Cable, whose shares are expected to officially start trading in the coming weeks. All that even though big cable stocks already trade close to their 52-week highs.

At the same time, however, shares of small cable operator Mediacom Communications have faced headwinds on the Street amid concerns that it doesn't have enough leverage to get out of a nasty carriage dispute with broadcaster Sinclair unscathed.

Pali Research analyst Richard Greenfield recently downgraded Mediacom shares to a rare "sell" rating with a research note titled "It's tough to be small."

He said that "despite the across-the-board strength exhibited by the cable industry throughout 2006, we are increasingly concerned about Mediacom's prospects." Greenfield not only cited the showdown with Sinclair as a concern, but also the potential for a slowdown in financial growth this year.

"The company's ability to convert deeply discounted subscribers into full paying subscribers during mid- to late-2007 is a meaningful risk to our 2007 (financial) estimates," he said.

Mediacom's revenue growth could decelerate from an estimated 9.7% in 2006 to 9.3% this year, Greenfield said. Operating cash flow gains could falter from 9.1% to 7.5%, he added.

Overall, Greenfield said that Mediacom deserves only a $6.50 target price.

Medicacom's stock gained 46.4% last year to $8.04, and this year has so far held up well despite the Sinclair showdown. It is down 0.9% year-to-date.

Meanwhile, Comcast Corp. has earned a slew of bullish analyst notes since the start of the year, with many analysts boosting their financial forecasts and price targets.

For example, Merrill Lynch analyst Jessica Reif Cohen boosted her Comcast price target $10 to $57 (HR 1/16), and Goldman Sachs analyst Anthony Noto in starting coverage of Comcast called it his "favorite idea" in the distribution sector (HR 1/10).

The stock is up 5.2% so far this year.

TWC, whose shares have been trading on a when-issued basis ahead of their impending official market debut, also has looked healthy and gotten some Street love.

"We anticipate cable multiples to be the same or higher in 12 months," said Reif Cohen in a recent note that projected TWC 2007-10 operating cash flow growth would hit a compound annual growth rate of 14%.

Another big cable firm that has been getting some Street buzz despite strength last year is Charter Communications. Citigroup analyst Jason Bazinet recently boosted his target price from $3.25 to $4.35 and reiterated a "buy" rating on Charter, citing improving fundamentals.

"Our bullish stance stems from our belief that rural cable will outperform urban cable due to lower telco fiber risk and faster growth from voice deployments," Bazinet wrote.

Overall, many cable stocks, especially bigger blue chips, still look appealing as the year unfolds, many said.

Not even the recent focus of industry observers on technology innovations showcased this month at the Consumer Electronics Show in Las Vegas has cast clouds of doubt over that.

"We believe the new products and services announced at this year's CES conference are more likely to act as a complement than a substitute for cable/satellite subscriptions," Oppenheimer & Co. analyst Thomas Eagan said in a recent report.

Cablevision Systems, meanwhile, seems to be an exception in the cable space right now as it has left Street observers clearly divided since a special committee of the company's board last week rejected a $30 per-share bid by the founding Dolan family to take it private.

Analysts said the shares' value should be as high as $35-$36, and others speculated about a potential third-party bid for at least parts of Cablevision. Wachovia upgraded the stock from "market perform" to "outperform," citing the generally expanding cable stock valuations and "strong" fundamentals at Cablevision.

However, Bazinet on Monday downgraded Cablevision shares to "sell," arguing no further takeover bids are likely, partly because of the "looming" risk of growing competition from Verizon's FiOS video service.

The stock is up 5.9% year-to-date.
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