For every person who had to wait forever for Time Warner Cable, Inc. (NYSE: TWC) to pick up the phone, for every customer who had to slog through an automated voice menu, then stew waiting to talk to a person, for every family that went days without TV or internet, Los Angeles City Attorney Rocky Delgadillo struck a blow Friday. On behalf of the city of Los Angeles, Delgadillo sued the top cable provider for southern California, saying its service was so bad it constituted fraud and deceptive advertising.
The city wants $2,500 for each instance, double if the victim was old or disabled. Part of the problem in Los Angeles stemmed from the company's complicated task of absorbing Comcast and Adelphia customers, not everyday business. Consumers had filed their own civil suit a while back.
Time Warner Cable stock dropped $1.23, or about 4%, Friday on somewhat heavy trading. The damages could add up to potentially millions of dollars. Or it could be one of those lame settlements that give customers useless coupons.
The direct impact of the civil suit isn't as much of a big deal -- yet -- as the broader implications. What if other cities or customers sue? How is this suit going to influence the opinion of someone who's deciding between Time Warner and Dish Network or DirecTV? Between Roadrunner and wireless broadband? For a long time, cable providers could offer lousy service because there was basically no competition. Now, they have to behave better or lose customers. Now that could be real money.
Deutsche Bank raised its price target on DTV to $36 and says: "we expect continued strong top-line growth, operating leverage, lower capex, and aggressive repurchases and a resolution of its control issues."
DTV over all option implied volatility of 32 is below its 26-week average of 37 according to Track Data, suggesting decreasing price movement.
Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
Shares of digital television provider DirecTV Group Inc. (NASDAQ: DTV) have been rallying in early trading as its earnings numbers for the first quarter were better than analysts had forecast. The company also announced its board approved an increase in its stock buyback program, raising it to $3 billion.
The company said its first-quarter profit rose 10% to $371 million, helped by higher subscriber additions. DirecTV was able to slightly come in above analyst estimates, with 32 cents per share compared to the forecast 31 cents per share. Compared to its first period last year, earnings were up, as the digital television provider came with earnings of 27 cents a share last year.
The nation's largest satellite-TV company posted a respectable growth of 17% for its first-quarter revenue, which jumped to $4.59 billion compared with $3.91 billion a year ago. This was above analysts' predictions for quarterly revenue of $4.47 billion, according to Thomson Financial.
MOST NOTEWORTHY: EastGroup Properties, Take-Two and Calumet Specialty were today's noteworthy downgrades:
After EastGroup (NYSE:EGP) reported slightly higher-than-expected Q1 FFO per share, Cantor Fitzgerald downgraded the stock to Hold from Buy on valuation. However, the firm still believes that the company's business model and dividend fundamentals are well-positioned.
Citigroup downgraded Take-Two (NASDAQ:TTWO) to Hold from Buy citing balanced risk/reward as the firm does not expect an aggressive competing bid process.
Raymond James downgraded Calumet (NASDAQ:CLMT) to Underperform from Market Perform following the company's reduction in distribution to 45c unit from 63c.
I've been hearing more and more about Verizon's (NYSE: VZ) FiOS products. I'm sure you've heard about them too -- you can get very fast broadband connections and TV services via fiber-optic technologies. They are meant to compete with cable companies such as Comcast (Nasdaq: CMCSA) and Cablevision (NYSE: CVC), as well as satellite entity DirecTV (NYSE: DTV).
Now comes word of an interesting deal involving a large apartment complex in New York City. According to this press release, Verizon will be supplying its FiOS broadband service to denizens of Stuyvesant Town and Peter Cooper Village. This is a significant accomplishment for Verizon, to be certain, since there are 110 buildings in the complex. Verizon is counting on FiOS to be an important driver of its business going forward. Reading through the press release, I do have to say that the speed potentials do sound impressive, and that the residents of this complex have something to look forward to -- I should point out, though, that I've never tried FiOS. Still, I do know someone who has the service, and from what I hear, it's pretty satisfactory, to say the least. As an interesting example, FiOS at its optimum speed level could download a movie 90 minutes in length in a little over three minutes. Now that's fast!
Verizon's FiOS scored an impressive deal here, and it will be interesting to see how many more transactions of this type the company will successfully execute. And you know what's pretty neat about Verizon? Unlike the competitors mentioned here, Verizon has a rather juicy dividend yield to go along with its broadband-content distribution model -- about 4.6% as of yesterday's close. FiOS and dividends -- it has a nice ring to it, doesn't it?
Disclosure: I don't own shares in any of the companies mentioned here; positions can change at any time.
MOST NOTEWORTHY: AU Optronics, General Steel and Sequenom were today's noteworthy initiations:
Jefferies initiated AU Optronics (NYSE: AUO) with a Buy rating and $25 target and believes LCD trends will be healthy in 2008 despite a soft economy.
General Steel (NYSE: GSI) shares were started at Merriman with a Buy rating, as the firm believes strong demand for steel in China should last for years and finds the valuation attractive at current levels.
Cantor believes Sequenom (NASDAQ: SQNM) is positioned to establish sustainable market leadership as a provider of genome analytical products and molecular diagnostics. Shares were assumed with a Buy rating and $12 target.
OTHER INITIATIONS:
UBS initiated Altria Group (NYSE: MO) with a Buy rating and $30 target.
Canaccord Adams assumed Drugstore.com (NASDAQ: DSCM) with a Buy rating and $3.50 target.
Goldman Sachs initiated DirecTV (NASDAQ: DTV) with a Buy rating and $30 target.
Best Buy, Inc. (NYSE: BBY) is stepping up promotion of high-definition TV in its stores by paying for satellite bills of customers who buy a new HDTV along with DirecTV service. From looking at the details, it looks like a promotion like this is probably much more attractive than running constant "sales" on HDTV sets.
Best Buy will pay $30 of a new DirecTV customer's monthly satellite television bill for 12 months as part of the promotion geared towards increasing awareness of hi-def TV among its customers, the retailer announced last week. There are caveats, of course. Customers taking advantage of the promotion must sign up for one of DirecTV's high-definition programming packages and the customer must also purchase a new HDTV set worth at least $999. The retailer will pay for six months of $30 HD programming if the new HDTV set is priced under $999.
Al things considered, this is one of the neater promotions I've seen from the consumer electronics retailer, specifically geared towards getting HDTVs into the hands of more customers. The cost of HDTVs isn't in the set itself, but in the pricing of programming. It's true that over-the-air HD programming from local networks is free, but there's a whole world of niche HD programming available from cable and satellite. Here's a suggestion, Best Buy: pay $30 of a new HDTV customer's bill for 24 months with a new HDTV purchase of $1999 or more, since most of them cost that much anyway.
DirecTV (NYSE: DTV) was upped from "market perform" to "outperform" at Bernstein according toBriefing.com. The news service also said that Morgan Stanley has downgraded Wells Fargo (NYSE:WFC) from "equal weight" to "under-weight."
Jefferies downgraded Google (NASDAQ:GOOG) to "hold" from "buy," according to24/7 Wall St. The website also said that Goldman Sachs downgraded Morgan Stanley (NYSE: MS) from "buy" to "neutral".
Douglas A. McIntyre is an editor at 247wallst.com.
Have you girded your stock portfolio against recession? You may want to take some tips from the latest edition of StockWatch: Between the Bells with Kevin Depew. The Minyanville.com executive editor offers some stock plays to head off a broad downturn in the market, and explains how large-cap companies are moving the market.
We will debate the Comcast (NASDAQ: CMCSA) (Cramer's Take) blowup -- it just cut its forecasts for 2007 sales, new subscribers and cash -- for a long time. Trying to figure out how a monopoly utility that we used to regard as a utility that could no more be shut off than Con Ed, has become a totally discretionary competitive item that needs to be sold and can't be pulled.
The implications either way show you the limits of this former wonder industry. For all of the years I have been in the business, investing in cable stocks worked. The companies always grew with consistent cash flow and that was enough. They were utilities that always talked about how dividends weren't tax-advantaged and instead focused on the broad expansion and cash flow growth.
The earnings season crunch is underway once more, and among companies reporting next week are Merck & Co. (NASDAQ: MRK) and AT&T Inc. (NYSE: T).
In its second quarter report in July, Merck reported earnings per share of 82 cents, beating Wall Street's expectations by 13.9 percent, up from 73 cents in the same period the previous year. Merck had one-year earnings per share growth of 16.9 percent, which was better than the S&P 500 and the pharmaceutical industry average. For the third quarter, analysts surveyed by Thomson Financial expect Merck to report earnings per share of 69 cents.
It was not supposed to happen this way. Cable TV companies had advantages over telecom and satellite TV firms. They could offer TV, voice, and broadband as a bundle. Satellite could not. And telecom companies had to finish expensive fiber-to-the-home deployments to get into the TV business.
Yet shares of Comcast (NASDAQ: CMCSA), the largest cable company, trade near their 52-week low at under $24 while AT&T (NYSE: T) seems to make a new high every day. DirecTV (NYSE: DTV) also trades near its high.
Telecom broadband may be taking customers from cable faster than expected. Another problem cable has is the fact that satellite and fiber allow for more HDTV channels. According toThe Wall Street Journal DirecTV has 55 HDTV channels compared to a little over 20 at the big cable companies.
Cable companies say they are not taking the problem lying down. They have come up with new ways to add bandwidth, allowing them to offer more HDTV. One involves only sending TV signals to areas where a channel is actually being watched.
Cable company stocks are down. Perhaps the reason is that they had a chance to upgrade their systems for HDTV but simply waited too long.
As Doug mentioned this morning, EchoStar (NASDAQ: DISH) has purchased SlingBox for $380 million in its quest to gain some kind of interactivity with its customers. You see, although EchoStar's DISH Network is popular along with DirecTV as standalone satellite services, cable and telecom companies are pushing harder than ever into two-way services meant to hook customers to more and more product offerings.
But outside of the SlingBox acquisition, EchoStar looks to be spinning off non-core assets at the same time. The company is reportedly looking at spinning off its non-Pay TV services into a different company. Along with the "view anywhere" technology it will gain from the SlingBox purchase, does EchoStar foresee large changes coming to its industry? Some would say yes, or that it is just implementing some type of preventative maintenance to remain competitive.
At the same time it would be rolling out cool services like SlingBox to its customers, the company would spin off the division of EchoStar responsible for set-top boxes, manufacturing, and its satellite centers into a new publicly traded company. Oddly, the SlingBox product line would remain with the core company, even though it is a "set-top box" of sorts. The reason? EchoStar Chief Charlie Ergen says that separating the consumer and wholesale businesses would unlock shareholder value, and the SlingBox product is most definitely a consumer product. Ergen also stated that he would serve as CEO of both companies.
The last question is this: what is DirecTV doing? It's had problems rolling out HDTV channels through its satellite network so far, so it could be the one left floundering here if EchoStar's position as two separate companies with a hot-company acquisition all goes through soon.
DirecTV
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