Cable stocks, fueled over the past few years by deal speculation, began to run out of gas in 2015, with distributors gaining only about 10% for the year, continuing 2014’s trend of gains leveling off as deal-making cooled.
In past years, cable deals have driven the markets. Stocks climbed 43.8% in 2012, 50.3% in 2013 and 15.2% in 2014, primarily as Charter Communications pursued its prime target, Time Warner Cable.
But Charter won the prize earlier this year, inking a deal valued at about $78.7 billion in cash and debt after Comcast dropped out of the picture in April. Since then, Charter’s stock gains have leveled off accordingly. Shares in Stamford, Conn.-based Charter rose 9.3% for the year to $182.80 on Dec. 28, while TWC was up nearly 22% to $185.05.
CVC’S BIG BOOST
The biggest gainer for the year was the most recent acquisition target — Cablevision Systems — which rose 54.3% in 2015 to $31.85 per share. In September, European telecom giant Altice agreed to purchase Cablevision in an all-cash deal valued at $17.7 billion. It was Altice’s second U.S. cable deal for the year; the company agreed in May to buy Suddenlink Communications in a stock and assumed debt deal valued at $9.1 billion.
The Cablevision deal, which is getting some resistance from local regulators, is expected to close in the first half of this year. The Suddenlink deal closed on Dec. 21.
Other deals have been done, but they have focused on private cable companies. In December, Crestview Partners agreed to purchase a 35% interest in overbuilder WideOpenWest for about $125 million.
Other deals are sure to follow in the coming year, but they’ll likely be smaller transactions as Charter and Altice absorb their current acquisitions. Altice has said publicly that it will take a breather from the deal market for at least two years as it assimilates its Cablevision and Suddenlink purchases, although it said it would go aggressively after Cox Communications if that cable operator decides to sell. For the record, Cox has said repeatedly that it is not interested in selling out.
Charter also is likely to take a breather as it integrates Time Warner Cable. That deal, once expected to close by year-end 2015, is still undergoing regulatory scrutiny; Charter has said it now expects to close by the end of March.
Comcast, which withdrew its $67 billion acquisition of Time Warner Cable in April after determining it would not receive regulatory approval, has focused on organic growth — most analysts expect the company to report positive basic-video subscriber growth in 2016 — as well as rolling out and licensing its X1 platform and beefing up its wireless presence.
In October, Comcast activated its Mobile Virtual Network Operator (MVNO) agreement with Verizon Communications. It has said it is in talks with several wireless carriers, moves that could lead to a hybrid cellular-WiFi communications product in the next few months.
Morgan Stanley media analyst Ben Swinburne, who made Comcast his top large-cap pick for 2016, believes the cable operator is poised for growth in both video and data.
COMCAST POISED TO GROW
While cord-shaving has had the biggest impact on video subscriber losses, Swinburne said, Comcast’s strategy to better serve more cost-conscious and price-sensitive consumers with smaller packages of programming puts it at an advantage to some competitors.
“Comcast can use these so-called skinny bundles to take customer share from competitors, as it has the best broadband pipe into the home and the video platform to differentiate its video offering from other providers,” Swinburne wrote in a research note.
Comcast will likely continue to take share from satellite and telco competitors in the coming year, Pivotal Research Group CEO and senior media & communications analyst Jeff Wlodarczak said in a note to clients, adding that its ownership of programmer NBCUniversal will at least help off set some increases in programming costs.
On the wireless front, Swinburne wrote that Comcast is expected to take a “light-touch approach” to the upcoming federal spectrum auctions, adding that any wireless- license purchases would likely be used as leverage to create stronger partnerships with carriers, rather than to build its own network.
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