More Subscribers Tune in to Cox
If you think broadband communications is the next hot spot, grab shares of Cox Communications (COX ), urges John Maloney, president of M&R Capital. He thinks Cox, the fifth-largest cable operator, is a bet on value as well as growth. The stock, which fell 7.6%, to 27.85, on Oct. 29, after posting a third-quarter loss of $73 million, or 12 cents a share, is at a low valuation not seen since 1996, says Maloney. The loss was mainly due to a write-down of its equity stake in Sprint's wireless unit.
But for Maloney, this is the time to snap up Cox--while the cable industry is reeling from Adelphia Communications' woes. Cox, 68% owned by Cox Enterprises, has "stable cash flow and the strongest balance sheet in the industry," says Maloney, who bought shares when they were trading at 29 last week. It closed at 28 on Oct. 30. Cox's subscriber numbers have exploded, and its big capital outlays are ending, so cash flow has been growing, notes Maloney. Cox has 6.3 million subscribers, of whom 1.7 million also pay for digital cable-TV services. But its fastest-growing segment is high-speed access to the Internet, for which it has 1.3 million customers. Maloney expects this will jump to 2 million in 2003. Cable telephony, now with 600,000 subscribers, is also growing fast: He expects that number to hit 900,000 in 2003.
Maloney figures Cox is worth 38, based on estimated 2003 cash flow of $3.40 a share. Analyst Niraj Gupta of Salomon Smith Barney rates the stock "overweight." He says Cox deserves a premium valuation, compared with its peers, because of its "superior growth prospects, excellent assets, and investment-grade balance sheet."
By Gene G. Marcial