Zacks_Analysts' Blog : Earning Scorecard: Time Warner Cable - Analyst Blog

Time Warner Cable Inc. (TWC) reported encouraging results for the fourth quarter of 2011, surpassing both the top and bottom line of the Zacks Consensus Estimate. Such improved performance was mainly driven by the growth in the high-speed data customers in both the residence and business segment coupled with increased demand for bundle products (inclusive of premium services).

Fourth Quarter Highlights

Quarterly GAAP net income was $564 million or $1.75 per share compared with a net income of $392 million or $1.09 per share in the prior-year quarter. Fourth-quarter 2011 adjusted (excluding special items) EPS of $1.39 handily beats the Zacks Consensus Estimate of $1.21.

Total revenue in the quarter increased 4% year over year to $4,993 million, surpassing the Zacks Consensus Estimate of $4,969 million.

Quarterly adjusted operating income before depreciation and amortization (OIBDA) climbed 8.7% year over year to $1,889 million. GAAP operating income grew 3.5% year over year to $1,029 million.

Agreements of Analysts

Of the 17 analysts covering the stock in the last 7 days, none revised their estimates for the ensuing first quarter of 2012.  Likewise, for the second quarter of 2012, out of the 16 analysts covering the stock, none revised their estimates. 

For fiscal 2012, out of the 19 analysts, one revised the EPS estimate upward while one moved in the opposite direction. Similarly, for fiscal 2012, out of the 18 analysts, two analysts raised their estimates but none reduced the same.

Currently, the Zacks Consensus EPS Estimate for the first quarter of 2012 is pegged at $1.22 per share with a projected annual growth of 20.73%. Similarly, for the second quarter of 2012, the current Zacks Consensus EPS Estimate of $1.38 per share reflects a year-over-year gain of 16.84%.

Magnitude of Estimate Revisions

For the first and second quarter of 2012, the current Zacks Consensus Estimates remained in line with the previous estimates of $1.22 and $1.38, respectively, over the last 7 days. Likewise, for fiscal 2012, during the last 7 days, the current Zacks Consensus Estimate was 2 cents, above the previous estimate of $5.55. Similarly, for fiscal 2013, the current Zacks Consensus Estimates was 15 cents, above the previous estimate of $6.45.

Earning Surprises

With respect to earnings surprises, the company has produced an average earnings surprise of 4.22% in the trailing four quarters. The current Zacks Consensus Estimates for both the ongoing quarter and the second quarter of 2012 include 0.00% upside side potential (essentially a proxy for future earning surprises), while for fiscal 2012 and 2013, it reflects a downside risk of 0.18% and 0.15%, respectively.

Our Recommendation

Solid free cash flow, proper customer segmentation, continuous acquisition, and constant return of capital by means of strong share buyback program and dividend hike will drive the company’s top-line and bottom-line growth in the forthcoming quarters. Moreover, recent agreement with Verizon Communication Inc. (VZ) will further create more opportunities for the company going forward.

However, huge debt coupled with a rise in programming cost and continuous loss of video subscribers will act as headwinds for the company going forward. Moreover, stiff competition from formidable rivals like Comcast (CMCSA) and AT&T’s (T) U-Verse network as well as the newly emerged online video streaming companies like Netflix Inc (NFLX) and Hulu, is expected to affect profitability going forward. 

We maintain our long-term Neutral recommendation on Time Warner Cable. Currently, Time Warner Cable has a Zacks #3 Rank, implying a short-term Hold rating.

About Earnings Estimate Scorecard

Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at: http://www.zacks.com/education/