Sizing up cable, satellite in 2007


NEW YORK -- It's a new year, with new opportunities to make money. In that vein, Wall Street analysts kicked off 2007 with some predictions for possible media deals and for stocks to watch -- and stocks to stay away from.

Goldman Sachs analyst Anthony Noto last week assumed coverage of the cable and satellite TV sector with a "favorable" view of cable.

He cited "our expectation for multiyear return on invested capital ex-pansion, one of the fastest growth rates in communications, media and entertainment with limited advertising exposure, the sector's defensive characteristics, share buybacks or (buyouts) and potential multiple expansion."

However, Noto took a "neutral" view of satellite stocks DirecTV Group and EchoStar Communications, arguing that the triple-play product bundle pushed by cable operators should continue to pressure them.

Noto called Comcast Corp., whose shares he started out with a "buy" rating, his "favorite idea" in the sector, citing 20% upside to his $51 price target.

Not all cable stocks are created equal, though, as Pali Research analyst Richard Greenfield downgraded Mediacom Communications to a "sell" 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 mentioned a showdown with Sinclair Broadcasting, price promotions and the potential for a deceleration in growth this year as key concerns.

Some industry observers have suggested that Mediacom could become a takeover candidate over time.

Speaking of dealmaking, an analyst team at Oppenheimer & Co. last week predicted that the entertainment space will see more transactions this year.

"Consolidation of the consumer-driven online sites is likely to continue, following News Corp.'s purchase of MySpace and Google's purchase of YouTube," they said in a report. "Potential acquirers include the other large entertainment companies. ... Potential targets include Facebook and Napster, as well as several display advertising networks, such as Burst, Casale and Vendare."

On the cable side, the analysts also predict more consolidation and swaps. For example, "we expect Time Warner (Cable) will nearly consolidate the Los Angeles cable market by acquiring Charter's systems there," the team predicted.