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The Zacks Analyst Blog Highlights: Comcast, Time Warner Cable, DIRECTV, AT&T and Target

Zacks Equity Research

For Immediate Release
 
Chicago, IL – August 12, 2014 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the Comcast Corp. (CMCSA-Free Report), Time Warner Cable Inc. (TWC-Free Report), DIRECTV (DTV-Free Report), AT&T Inc. (T-Free Report) and Target Corp. (TGT-Free Report).
 
Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

Here are highlights from Monday’s Analyst Blog:

Mixed Bag for U.S. Pay-TV Industry in Q2

The second quarter of 2014 has turned out to be a mixed for the U.S. pay-TV industry which has managed to consolidate its position despite stiff competition from online video streaming service providers.

Although the industry continues to witness significant video subscriber losses, the rate of customer churn has narrowed down considerably, translating into the best second quarter performance in the last six years.

Overall, the pay-TV industry lost 305,000 video subscribers in the second quarter of 2014 compared with 387,000 in the year-ago quarter. Within the industry, cable TV operators lost 517,000 video customers against a loss of 607,000 customers in the prior-year quarter.

Satellite TV providers lost a combined 78,000 subscribers against 162,000 in the year-earlier quarter. Notably, the fiber-based video services offerings of telecom operators registered a total gain of 290,000 video subscribers. However, this figure fell measurably compared with a gain of 373,000 customers in the year-ago quarter.

Over the last six years, the internal dynamics of the pay-TV market have been gradually shifting from cable TV offerings toward fiber-based video services of large telecom operators. Moreover, the strong presence of online video streaming providers is posing significant threat to the existing pay-TV business model.

Video offering, the core business area of the cable TV operators, seems to be slipping out of their hands. At this juncture, a relatively better performance by the cable-TV industry bodes well for the future.

Meanwhile, the U.S. pay-TV industry is currently witnessing massive consolidation. In Feb 2014, Comcast Corp. (CMCSA-Free Report) reached an agreement with Time Warner Cable Inc. (TWC-Free Report) to acquire the latter in an all-stock deal valued at around $45.2 billion.

In May 2014, DIRECTV (DTV-Free Report) reached a definitive agreement with AT&T Inc. (T-Free Report) to sell its business to the latter for $48.5 billion. Both deals are expected to close within a year from the date of their announcement. However, the deals are expected to face tough scrutiny and close monitoring by regulator, Federal Communications Commission (:FCC).

Target Slumps to Strong Sell on Preliminary Guidance Cut

On Aug 7, 2014, Zacks Investment Research downgraded Target Corp. (TGT-Free Report), the general merchandise retailer, to a Zacks Rank #5 (Strong Sell).  

Why the Downgrade?

Estimates for Target have shown a downtrend since the company made a few preliminary announcements on its second-quarter 2014 results, including recording higher expenses and lowering its earnings per share outlook.

Management announced that owing to the data breach experienced by Target late last year, the company expects to record gross expenses of $148 million in second-quarter 2014. However, it anticipates receiving partial relief on account of insurance receivables worth $38 million.

As per sources, the company has been recording significant costs ever since its computer systems got hacked and its customers’ credit card information was stolen in Dec 2013. The company has been attributing a part of its breach-related expenses to consulting, legal and credit monitoring services.

Moreover, the company made a $1 billion payment as an early debt retirement in the second quarter, which resulted in a pre-tax loss of $285 million. This will be noted as net interest expense in second-quarter 2014.
 
Following the ongoing impact of its data breach and the aforementioned predictions, Target lowered its earnings per share outlook for the second quarter. It now projects adjusted earnings to be roughly 78 cents a share, as compared to a range of 85 cents to $1.00 forecast earlier.

The adjusted earnings guidance was lowered as management now expects flat same-store sales at the company’s U.S. segment, coupled with earnings before interest, taxes, depreciation and amortization (:EBITDA) margin coming in at a lower-than-expected rate. Also, management anticipates sales to remain soft at the company’s Canadian segment as the breach has shaken consumer confidence, resulting in lesser footfall and a public relations nightmare for the company.

This trimmed guidance triggered a downtrend in the Zacks Consensus Estimate, as analysts became less constructive on the stock’s future performance. This is evident from the movement witnessed in the Zacks Consensus Estimate that fell 5.2% to $3.49 for 2014 and roughly 3% to $4.14 for 2015 in the past 7 days.

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