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Cablevision Is on the Verge of Unlocking Great Value

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

By Dave Sterman

NEW YORK (StreetAuthority) -- I spend much of my time in search of companies that possess robust growth prospects. But I'm also content to occasionally focus my energy on companies that are unlikely to grow meaningfully. The catch: these companies must be able to generate a huge amount of profit from their sales base in a consistent manner. Or they need to own a set of assets that would be highly coveted by other firms in an industry.

I think I've found a company that checks off both of those boxes.

New York-based Cablevision (CVC) generates stunning amounts of free cash flow. And recent events make me think the company may soon receive a very flattering offer from a rival or a private-equity (PE) firm.

An industry that has peaked

It's no secret cable companies face myriad threats. Some consumers have balked at $100 monthly bills and are now content to simply surf the web for their evening's entertainment. (In the case of Cablevision, we're talking about a $150 average monthly bill.) Other consumers are ditching their cable providers for satellite-based providers such as DirecTV (DTV) (which, incidentally, can consider me a very happy new customer after making a recent switch).

But rumors of cable's demise are greatly exaggerated.

The vast majority of consumers are sitting tight, continuing to get cable service along with Internet access and phone service -- all from a company with which they already have a longstanding relationship.

Simply put, cable companies such as Cablevision, which already has 3.6 million customers, are hard-pressed to find any new customers at this point in their life cycle. At the same time, they are not likely to see their customer base materially shrink, either. So their real focus is on squeezing out profits from every bill. And boy, is Cablevision profitable.

In 2010, for instance, Cablevision generated $7.2 billion in revenue and $2.6 billion in EBITDA. This worked out to be 36% EBITDA margins, which is quite impressive in any industry, let alone one that is mature and subject to fierce competition.

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