Tech Winners & Losers: Nortel

PHILADELPHIA -- A slowing economy took its toll on media, cable and telecom companies in the July-to-September quarter, but an analyst said that while media performed "a little worse than expected" and telecom growth slowed, cable operators seemed to be more recession-resistant than the rest of the pack.

Citi Investment Research analyst David Hamburger said among media companies, News Corp. (NWS) in particular fared worse, while Walt Disney Co. (DIS) showed some signs of slowing as well.

In the first fiscal quarter of 2009 ended Sept. 30, News Corp. posted weaker-than-expected TV and film results and said it expects operating income to drop at a mid-teen percentage for the year. That compares with the 5% growth the media conglomerate had expected at the end of the second quarter.

But Hamburger noted that News Corp. has a strong balance sheet and conservative management team. He has a "Buy" on its 6.65% debt issue due 2037 with a spread of 482 basis points.

Disney's fiscal fourth quarter, which ended on Sept. 27, softened as well. In particular, the broadcasting division's loss widened to $150 million, driven by weakness at the ABC television network and lower ad revenue at its TV stations. Also, forward bookings at its theme parks and resorts were down 10%.

In cable, Hamburger recommended buying Time Warner Cable's (TWX) debt issue that pays 8.75% because it's trading at a 504 basis point spread and "we believe investors are well compensated for higher leverage."

Major cable operators have been generating robust free cash flow growth as a result of prices increases, subscriber growth and lower capital spending.