Tale of two cablers

Analysts doll out stock upgrades

One giant and one small cable operator earned upgrades from Wall Street analysts last week.

Bear Stearns analyst Spencer Wang moved his rating on Time Warner Cable, the nation's second-largest cable provider, from "peer perform" to "outperform" with a $45 price target.

And Miller Tabak + Co. analyst David Joyce upgraded shares of Knology Inc. from "neutral" to "buy" and boosted his price target by $2 to $21, providing for 25% upside potential.

Headquartered in West Point, Ga., Knology has 418,000 residential and 53,500 commercial subscribers in the Southeast and the South Dakota region.

Wang, in a research report, cited "new proprietary work, which suggests that integration of the L.A. systems (acquired from Comcast Corp. and Adelphia) is now progressing more smoothly, leading to higher 2008 estimates."

TWC management has long argued that Los Angeles and Dallas pose the biggest integration challanges after the Adelphia deal. In Los Angeles, the firm has had to tackle outages, long call-center wait times and complaints about video lineup changes, according to Wang.

However, he said that "complaint volumes are decreasing about 20% per month, while customer call times are improving 10% per month."

Given the reduced integration risk, "we have more confidence in our above-consensus 2007 estimates," Wang wrote in a report. He also increased his 2008 revenue growth projection from 12% to 13% and his operating cash flow growth estimate from 15.2% to 16.8%.

Other factors making him bullish are a likely increase in TWC shares, which should be "making the stock more investable," and Friday's addition of the stock to the Russell 1000 stock index, which "could be another technical catalyst," Wang said.

Finally, Wang suggested a one-time dividend could be an option for TWC as he expects the firm to "evaluate opportunities to boost equity returns with leverage."

Meanwhile, Joyce said his Knology upgrade was a "valuation call after the stock fell back" into the $16 range in recent weeks.

"We had expected that the stock needed to take a 'breather' before we upgraded it again," Joyce said. "But we are into a period where 2008 multiples are increasingly becoming the primary valuation metric."