Operators 'riding wave of optimism'


NEW YORK -- Investor sentiment was a key theme for industry observers as they prepared to go into the long Labor Day weekend.

In a summary of its latest study, research firm Kagan Research said that "in the second half of 2006 cable operators are riding a wave of investor optimism related to the accelerating rollout of (telephony) services and the accompanying halo effect on basic subscriber retention."

Indeed, many on Wall Street have pointed out this current bullish sentiment, which follows several tough years for cable stocks.

Among the positive news for cable firms, Kagan pointed out that cable homes that will see telephony services marketed will "leap from 31.2 million at the end of 2005 to an estimated 68.7 million by year-end 2006," while telephone subscriber numbers have risen from 600,000 at year-end 2004 to 2.6 million at the end of last year. By the end of this year, the figures are forecast to hit 6.5 million.

Continued consolidation is also a positive for cable players, as "many clustering benefits in major metro areas have yet to be realized," the firm said. "These include the exploitation of the potential of interactive advertising, greater telephony efficiencies, increased penetration into businesses, better marketing economics and a rationalization of operating costs."

Kagan senior analyst Robin Flynn believes that this along with continued core growth will push cable residential revenue to $119.8 billion by 2015.

Bear Stearns analyst Spencer Wang last week echoed the feeling that cable stocks have positive investor sentiment going for them, but cautioned that this doesn't necessarily bode well for the future. "Sentiment for Comcast is now at the high end of its range," he said. "Coupled with strong stock performance lately, this may signal Comcast shares are due for a near-term pause."

Wang updated his Media Sentiment Index, which quantifies sentiment by looking at three measures: short interest, volatility and put/call spreads. "The goal of the MSI is to identify situations where consensus may be uniformly pessimistic, thereby creating room for upside surprise, or overly optimistic, which may suggest a stock is overbought in the near term," he explains.

Two big entertainment stocks he highlighted as overbought in his previous MSI analysis were News Corp. and the Walt Disney Co. His pick now is Viacom Inc. as investor sentiment for it "appears low," Wang said.