Cablevision (CVC) Is A Highly Recommended Stock Pick, According To Media Analyst
December 28, 2009 - The Wall Street Transcript has just published Luxury Goods, Entertainment, Toys & Games Report offering a timely review of the Media sector. This Special Report contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. Please find an excerpt below.
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CHRIS MARANGI is Associate Portfolio Manager of the Gabelli Value Fund, a $500 million open-ended mutual fund that invests in a concentrated portfolio of securities that sell below their private market values. Mr. Marangi has appeared on Bloomberg television and radio, and has been quoted extensively in publications including The Wall Street Journal, New York Times, Barrons, Newsday, Bloomberg, Variety and Broadcasting & Cable. Mr. Marangi joined GAMCO in 2003 as a research analyst covering companies in the cable, satellite and entertainment sectors. He began his career as an Investment Banking Analyst with J. P. Morgan & Co and later joined private equity firm Wellspring Capital Management.
TWST: Which companies do you like right now and why?
Mr. Marangi: In the cable network area, we continue to like Time Warner, which after the separation in March 2009 of Time Warner Cable (TWC) and the separation of AOL (AOL) in December 2009, will be essentially a cable network company; it continues to do well. They have two of the highest-rated networks in TNT and TBS. We also like Discovery Communications (DISCA), which pound-for-pound probably has the best content assets on the planet. Their content is evergreen and travels well, and there are a number of growth opportunities there with some of their network rebrandings, including the Oprah Winfrey network and the Hasbro Kids channel. Viacom has had some ratings issues in the MTV Networks, but it's a prolific cash generator and a cheap stock.
TWST: Are there smaller players in the network area?
Mr. Marangi: There are: Crown Media (CRWN), which owns the Hallmark Channel; Outdoor Channel (OUTD); these would be some of the smaller players. But we are not recommending them at this time.
TWST: What about on the cable side?
Mr. Marangi: In general, we tend to favor distribution over content. And within distributors, our favorite name is DIRECTV (DTV), which recently merged with its largest shareholder, Liberty Entertainment (LMDIA). DIRECTV has premium content, premium customers and a premium brand, generates a lot of free cash flow and has a number of catalysts in the near future, including the possible separation of DIRECTV Latin America and a merger with one of the telephone companies. We've been recommending Cablevision (CVC) for some time, which has three businesses. They are the cable operator in parts of New York City and most of the New York suburbs, a cable network owner (they own AMC, IFC, WE and Sundance), and they own Madison Square Garden, which includes the arena, sports networks, the New York Knicks and the New York Rangers, among other assets. Again, one of the best-run cable operators in the country, very highly penetrated and far down the capital investment curve. There are a number of catalysts there, including the spinoff of Madison Square Garden, which is to occur by the end of 2009. We think they'll sell the cable networks and eventually combine their telecommunications assets with either those of Time Warner Cable or Comcast.
TWST: Are we going to continue to see realignments, mergers and acquisitions? Or will things settle down?
Mr. Marangi: I think we are just getting started. We've already seen some significant transactions this year with Disney buying Marvel (MVL), Scripps Networks (SNI) buying the Travel Channel and Comcast (CMCSA) likely to purchase 51% of NBC (GE). The NBC deal will be closely watched and could lead to a reshuffling of the landscape. Time Warner has a lot of cash and News Corp. has a lot capacity, and we think both of those will be anxious to add cable networks.
TWST: Are we going to see more specialized programming? Or will we see the opposite, trying to reach broader markets?
Mr. Marangi: Time Warner has been very successful with its general entertainment networks, TNT and TBS, as viewers have moved from broadcast to cable. But we think that the specialty channels will do very well and command premium CPMs. Scripps and Discovery in particular have done very well with targeted networks.
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