Analyst Craig Moffett of MoffettNathanson Research has downgrade Comcast, Time Warner Cable and Charter Communications to Neutral, warning investors that it's time to reduce their exposure to the cable business.
Moffett cites increased risk of regulation and a decreased chance that Comcast will be able to close its acquisition of Time Warner Cable for his new outlook.
Cable stocks have been rallying lately despite increased talks of regulating carriers under Title II of the Communications Act.
Moffett thinks that the market believes a Republican Congress and a future Republican FCC will roll back regulation, or that severe regulation is too far in the future to affect current investment strategy. Moffett disagrees. "At its core, Title II is about price regulation. It would be naïve to believe that the imposition of a regime that is fundamentally about price regulation, in an industry that the FCC has now repeatedly declared to be non-competitive, wouldn't introduce risk to future pricing power. Terminal growth rate assumptions need to be lowered," he said in a research report Tuesday.
Moffett also lowered the probability that the Comcast-TW Cable deal being approved to 60-40 from 70-30. "None of the companies involved need the deal to thrive, but successful completion of the deal is an important part of the story," he said.
All of this is happening against a background of signs of ill-health for the traditional pay TV business. "Worsening viewership and advertising trends are driving programmers to break ranks both with each other and with their legacy distributors," Moffett said. "In the past, changes to broadband pricing would have been the natural remedy. That avenue may no longer be open."