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L.A. Story Helps Time Warner Cable

Bear Stearns media analyst Spencer Wang upgraded his rating on Time Warner Cable stock to “outperform” from “peer perform” last week and raised his 12-month price target on the stock to $45, citing progress in the No. 2 cable operator's integration of the Los Angeles market.

Time Warner Cable acquired more than 1 million additional customers in Los Angeles last July as part of its joint purchase of Adelphia Communications with Comcast. But the company ran into some early problems integrating that market because of outages, long call-center wait times, and complaints about changes to the video-channel lineup.

Wang noted the problems in L.A. can be fixed and are not structural in nature.

He said the city's Information Technology Agency reports that customer-complaint volume is dropping by about 20% per month, and average call times are improving by about 10% per month.

“Our work finds that after an initial rough patch (to put it lightly), the difficult transition of consolidating subscribers acquired from both Adelphia and Comcast is now proceeding more smoothly,” Wang wrote.

As a result of what he called a lower execution risk, Wang raised his 2008 revenue and cash flow growth estimates for Time Warner Cable.

According to Wang, revenue should grow about 13% in 2008 (versus his previous estimate of 12% growth) and cash flow should rise 16.8% (compared to 15.2% growth).