Despite high unemployment and a still teetering economy, this latest earnings season has been anything if not spectacular for many publicly traded companies. And cable has enjoyed a similar ride. All the talk about cord cutting, over-the-top competition, the telco threat and net neutrality rules out of Washington have done little to temper the enthusiasm for the cable sector. And while some of this is simply post Comcast-NBCU euphoria, the Wall Street sentiment seems relatively spread across the cable distribution and content landscape. Goldman Sachs just upped its recommendation to “attractive” from “neutral” for the cable sector even as all these changes swirl around the industry. Goldman isn’t always right. But really, it’s just the latest to arrive at the cable party, considering that in-the-trenches cable analysts have increasingly warmed to the sector in recent months.
Much of this comes down to cycles. Wall Street’s love-hate relationship with cable goes back years, and it usually allows investors to ride the wave up to a point, offload their shares as firms start to label the sector as “overvalued,” and then short cable or sit things out for a while as the shares deflate back to their original levels. Sometimes the “overvalued” research notes come out in tandem with some sort of new media trend or regulatory shift that gives experts an excuse to ditch the sector. To be fair, that’s sometimes appropriate as uncertainty breeds more risk and therefore obligates analysts to warn investors that things might get rocky. Other times, though, fears turn out to be misplaced.
These love-hate cycles repeat time and time again. Even the industry’s top economic power (and lately the most innovative player) Comcast has found itself tossed around by this storm of positive and negative sentiment. It’s because of this cycle that cable often gets shunned by long-term, buy-and-hold investors (Are they still out there?). It’s no wonder. Just take a look at the charts over the last decade: Since spiking into the 30s during the dot com craze in 1999, Comcast has since sat in a trading range between the teens and low 20s. Cablevision, meanwhile, trades today at around the same price it commanded more than a decade ago. Mediacom now trades below its IPO price from 2000—no doubt part of the reason that savvy founder Rocco Commisso will soon take the company private. After years of Wall Street fickleness, Commisso understands something that many investors don’t: Cable owns the pipe, and the pipe is gold—no matter what the regulatory, financial or competitive situation. Cox Communications realized this in 2004 when it ditched the Street to go private itself. Pat Esser seems in a pretty good mood any time we see him out and about. Sometimes it’s better to just walk away.
One big question is whether Comcast, whose combination of distribution and content with the NBCU deal gives it unprecedented reach, will buck Wall Street’s see-saw cable trend. After all, the marriage of distribution and content at this scale has never been done before—and certainly not at a time of such enormous change. Comcast. Could. Go. All. The. Way… to higher stock price levels sustained for the long term. Goldman Sachs has set a $31 target. But alas, while Comcast and other cable operators ride the current wave, you gotta wonder: Will that shoe drop at some point, and what will it smell like this time? Netflix? The FCC? A new competitive threat from Mars? Only time will tell, but chances are that Wall Street’s fickle ways will be with us for some time to come.
(Michael Grebb is executive editor of CableFAX)