Remember how the cable industry was going to crash as subscribers cut the cord and started streaming everything? Turns out the cable industry is a key player in streaming, too, providing a lot of broadband access to bring internet into homes.
The Broadband Bull Case
Morgan Stanley analyst Benjamin Swinburne said the cable industry in 2019 was a surprisingly good year. The industry wasn't negatively affected by cord cutting to the degree expected, and capital spending was light.
The sector, which saw stocks up about 45%, is winning not necessarily on traditional cable TV but as a provider of broadband internet. The question is, can the industry repeat in 2020?
"Continued network investment, product enhancements, and the secular growth in consumer demand for bandwidth all play to cable's strength," Swinburne wrote in a note. "Routinely taking over 100% of market growth now, Cable is winning the broadband market."
And that mix shift away from pay-TV toward broadband is driving higher return on investment, because of the lower cost of providing broadband service.
Comcast Still King?
Swinburne particularly likes cable industry giant Comcast Corporation (NASDAQ: CMCSA), on which he has an Overweight rating and $53 price target, and says has "healthy upside and limited downside."
There may remain a threat to cable broadband from mobile, but it's not being felt yet.
"Despite being two years further along in its development and even initial deployments ... market concerns regarding 5G as a competitor to cable broadband have faded," Swinburne wrote Thursday.
Still Bullish On AT&T's Warner HBO
Meanwhile, the companies that actually provide the content, whether by traditional cable or streaming, still have to spend money on that content.
Warner Media's HBO recently announced it's seeing pressure on operating income from new content and other costs, which led Bank of America analyst David Barden to lower slightly his revenue estimates for Warner Media parent AT&T Inc. (NYSE: T).
Barden reiterated a Buy rating on AT&T with a $43 price target.
Comcast shares were trading up 0.81% on Thursday at $46.62. Shares of AT&T were down 0.28% at $37.78.
RBC Downgrades Comcast, Charter On Cable Concerns
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|Oct 2019||Initiates Coverage On||Market Perform|
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