Nomura Neutral on Cable, Satellite Industry

Mike McCormack of Nomura Research initiates coverage on the cable and satellite industry with a neutral rating.
By Theresa McCabe ,

NEW YORK (

TheStreet

) -- Mike McCormack of Nomura Research initiated coverage on the cable and satellite industry with a neutral rating and a positive bias toward cable stocks.

McCormack kicked off coverage of

Comcast

(CMCSA) - Get Report

,

Time Warner Cable

(TWC)

and

Cablevision

(CVC)

with a buy rating, based on their ability to implement usage-based pricing in comparison to its pay-TV peers,

Dish Network

(DISH) - Get Report

and

DirecTV

(DTV)

.

>>2010 Pay-TV Stock Winners and Losers

He initiated coverage of Dish and DirecTV with a neutral rating as he believes the satellite operators are "increasingly ill-suited to compete in the video business."

"We believe competition will increase from already high levels, with video-only product offerings defined by price competition and incremental services offered at diminishing margins," McCormack said in his Dec. 13 report.

He added that he will increase his subscriber estimates for companies within the sector if the housing market continues to show a positive trend towards a full recovery.

McCormack initiated coverage on Cablevision with a buy rating and a 2011 price target of $40.

The firm views Cablevision as a "premier cable operator" with an opportunity to expand its core cable revenue through further product penetration.

He projects a 5% growth in consolidated earnings before interest, taxes, depreciation, and amortization in 2011 and 2012, which translates to about 30% growth in free cash flow per share over the same time period.

Nomura sees the potential Rainbow spinoff as a positive for shareholders and predicts that a lack of

programming disputes

will benefit the company after management secured several long-term deals through 2011.

>>Cablevision Approves Rainbow Spinoff

Cablevision shares are up about 0.5% today to around $34.40,

trading at the high end of its 52-week price range

of $21.53 to $36.10. The stock is up more than 34% over the past year.

Nomura initiated coverage on Comcast with a buy rating and a $25 price target.

McCormack believes the cable stock is poised for growth in 2011 as a less restricting regulatory environment should boost investor perceptions.

Nomura sees the completion of the NBC Universal joint venture as a positive for the company and expects Comcast to implement price increases more freely following the merger.

>> Cable Companies Adapt to Keep 'Cutters'

He also predicts that Comcast will return cash to shareholders more aggressively after the deal is complete. Comcast shares are up more than 2.4% today to around $21.95, and have

gained more than 27% in the past year

.

McCormack initiated coverage on DirecTV with a neutral rating and a 2011 price target of $41 on the belief that shares are fully valued. He believes the company's shares already reflect its buyback opportunity as well as strong Latin American operations and a positive U.S. outlook.

"We believe DirecTV is capable of repurchasing over 10% of its share base per year" McCormack said.

DirecTV shares are up almost 18% over the past year. The stock is rising almost 1.6% today to around $39.87.

McCormack initiated coverage on Dish Network with a neutral rating and an $18 price target as he believes the company "lacks an identifiable catalyst to build a credible recommendation to buy the shares."

"We believe the debate on Dish shares will be largely defined by the company's success in regaining share of video subscribers and the likelihood of capital returns," McCormack said in his report.

Dish saw a

triple-digit gain in its third-quarter earnings

to $245 million, or 55 cents prt share as total revenue jumped 10.9% on an 11.3% growth in subscriber-related revenue.

The company added 819,000 gross subscribers during the quarter, compared to 887,000 subscribers in the same period a year earlier. While the company lost approximately 29,000 net subscribers compared to a net gain of 241,000 a year ago, the higher average monthly revenue per subscriber brought up revenue.

"Without visibility into an actual turn in operations, we have a hard time forming a conclusion that trends are actually improving," McCormack said. "Also, the pace of insider selling makes us cautious."

Dish is up more than 4.6% to $18.80 today while the stock is down more than 13% for the year.

McCormack initiated coverage on Time Warner Cable with a buy rating and an $80 price target, believing the company is set to benefit from expense reductions and share repurchasing programs offsetting expense pressures.

He expects to see EBITDA grow between 1% and 2% in 2011 and 2012 with an approximate 3% to 5% increase in free cash flow.

Time Warner Cable is

up more than 57% in the year

. Today the stock is down 0.02% to around $65.30.

-- Written by Theresa McCabe in Boston.

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Theresa McCabe

.

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.

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RELATED STORIES:

>> Cable Companies Adapt to Keep 'Cutters'

>>2010 Pay-TV Stock Winners and Losers

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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