Time Warner Cable Passes $90 With Fatter Margins On Pay-TV Biz

-3.12%
Downside
210
Market
203
Trefis
TWC: Time Warner Cable logo
TWC
Time Warner Cable

Time Warner Cable’s (NYSE:TWC) stock has come a long way since 2010, and is currently trading around $78. Is there further room to grow? Definitely, provided the company can maintain its growth in broadband and make some significant improvements in its pay-TV and digital phone businesses. Below we discuss certain key drivers that can lift our price estimate for Time Warner Cable past $90.

See our complete analysis for Time Warner Cable

Pay-TV Market Share Gain And Margin Enhancement

Relevant Articles
  1. Time Warner Cable Q1 Review: High-Speed Data Leads Revenue Growth, Company Gains Pay-TV Subscribers
  2. How Are Time Warner Cable’s Revenue & EBITDA Composition Expected To Change By 2020?
  3. What Has Led To A ~20% Increase In Time Warner Cable’s Revenues & EBITDA In The Last Five Years?
  4. How Has Time Warner Cable’s Revenue Composition Changed In The Last Five Years?
  5. How Much Can Time Warner Cable’s Revenues Grow Over the Next Five Years?
  6. What’s Time Warner Cable’s Fundamental Value Based On Expected 2016 Results?

Time Warner Cable has been consistently losing subscribers for the past few years and has not shown any key signs that the losses will slowdown or turn-around anytime soon. Even though its competitors seem to be improving their pay-TV subscriber trends, Time Warner Cable has lagged behind and has been a little slow in bringing modern features and offerings to its customers. However, recently it has started to realize this and is making amends by speeding up developments by adding features such as online streaming.

If the company can regain its 2007 market share level of about 13.5% and, in the process, improve its gross margins to 44%, there can be more than 15% upside to our current price estimate. This can propel its price estimate to $87.

Share Gains In VoIP

Although Time Warner Cable has gained subscribers in VoIP (or digital phone), it has not kept up with the industry growth, thus leading to a fall in market share. This is another area of improvement where the company can do better with pricing and bundling and thereby increase its value. If the company can sustain its current market share over our forecast period, it can add another $3 to our current price estimate.

Our price estimate for Time Warner Cable stands at about $76, implying a discount of less than 5% to the market price.

Understand How a Company’s Products Impact its Stock Price at Trefis