There was news in circulation last weekend about Cablevision’s bankers exploring the possibility of acquiring the New York Daily News as a natural progression reinforcing the company’s media interest. Cablevision Systems Corporation (CVC, Financial) owns Newsday and it has been confirmed that Cablevision’s CEO James Dolan has expressed interest in such an acquisition. And Mort Zuckerman, the co-founder and executive chairman of New York Daily News has shown signs of willingness to sell off his loss-making media company.
Another news which is also in the air and which could work in a total reverse order is the possibility of CVC itself getting acquired.
Comcast Corporation (CMCSA, Financial) is in the process to acquire Time Warner Cable Inc. (TWC, Financial). Analysts believe that U.S. regulators will block Comcast’s pending acquisition of Time Warner Cable or lay down conditions for approval which may be difficult for Comcast to pursue, casting a shadow over the deal. In case this acquisition process falls flat, Comcast will direct its merger and acquisition resources to target the next attractive option in order to enter the coveted New York City market. Speculators have pegged Netflix Inc. (NFLX, Financial) or Cablevision as the other top alternative acquisition options for Comcast.
Stock performance
The stock has been swinging within the price band of $16 to $20. After the dramatic events of last week the stock closed a little lower at $18.4 on Friday. Cablevision scores points on revenue growth front, progressive increase in stock price and good cash flow from operations in the past few years. However the unimpressive EPS growth has weighed negatively on the stock. In the last 13 years, the highest trailing dividend yield was 5.47%, the lowest was 0.57%, and the median was 3.20%. Hence the company is trading at an average ratio at present. The gross profit margin is currently rather high at 51.69% but lower when compared to the same period of the previous year. CVC's net profit margin of 3.43% is significantly lower than the industry average. A look at the final quarter results announced last month and the annual numbers will give a broad idea about the stock’s standing.
Quick recap of the fourth quarter
Cablevision reported total revenue of $1.63 billion in the fourth quarter, which is 3% higher when compared on a year-over-year basis, and also beat the Street estimate of $1.62 billion. The operating income for the quarter was $205.8 million, higher than $168.6 million in the fourth quarter of last year. Operating margin stood at 12.6%, again higher than 10.7% in the corresponding quarter of the previous year. The average monthly cable revenue per customer for this quarter stood at $155.20, once again beating last year’s quarter figure of $147.34. Cablevision reported adjusted EPS of $0.20 per share for the quarter which is slightly above the market consensus of $0.19 a share. The net operating cash flow increased to $321.28 million or by 5.78% as compared to the same quarter of last year. The company has underperformed in terms of change in net income from the same quarter, a year ago, as the net income decreased 75.7% when compared to the corresponding quarter of the past year. The fall was rather steep at $71.49 million from $294.60 million reported a year earlier.
Quick overview of the annual figures
By the end of Dec. 31, 2014, the company had generated $1.38 billion from its annual operations. The figure for last year stood at $1.13 billion. By end of 2014, Cablevision had $850.4 million of cash and cash equivalents in its kitty and $9.69 billion of outstanding debt. The company reported 5.5% year-over-year increase in the average monthly cable revenues per customer. By the final quarter of 2014, the company had 2.681 million video subscribers, 2.760 million high-speed data subscribers and 2.229 million voice subscribers. But it lost 34,000 video subscribers (a decline of 4.7% y-o-y), 4,000 high-speed data users and 11,000 voice customers. Street had estimated a loss of 24,000 video customers.
Final take
The annual revenue has shown an increase in overall revenue though the improvement in EPS is very slow process for Cablevision. Cablevision needs to tie up the loose ends and prevent customer poaching by rivals. The fundamentals of the company are not in great shape which is evident from the large debt reflecting in the balance sheet. But there is certainly scope to make timely corrections.
The Wall Street expects Cablevision Systems Corporation to take a note of its concerns and take corrective measures. On the stock guidance front it would be a "Hold" position as given by several analysts. Investors are being advised to keep a tap on the stocks competing in this segment as some of them are considered as better due to their strong fundamentals and positive stock moment. It would be very intriguing to watch if Cablevision succeeds in acquiring New York Daily News, or a weak balance sheet makes it susceptible to acquisition by acquisition enthusiast Comcast. So, let’s stay tuned for further news on this front.
