Reacting to the lack of explanation for how Cablevision Systems let COO Tom Rutledge get away to become CEO of Charter Communications, analyst Richard Greenfield has downgraded Cablevision's stock.
Saying he "screwed up" by sticking with his Buy rating on the Long Island-based cable operator, Greenfield now is Neutral on the stock. "The mistake we made in maintaining our Buy ratings was not truly understanding who/what was driving several of the decisions/shortfalls over the past 18 months," Greenfield said in a research note Tuesday. "We focused, instead, on how compelling Cablevision's valuation was based on it robust free cash flow generation."
Now that it is clear that Rutledge had differences with the Dolan family that controls Cablevision, Greenfield points to the acquisition of Bresnan Communications, battles with programmers including News Corp., and the company's sluggish attempt to go "boxless" as signs of potential trouble.
"With the management upheaval at Cablevision in Q4 2011, we are no longer comfortable that easy comparisons with the Fox battle last year will result in improved results sequentially," Greenfield said. "In addition, we are increasingly concerned that EBITDA (AOCF) will fall low-mid single digits in 2012, despite the inclusion of Bresnan (organic benefit to growth, rather than first-time addition that was excluded in 2011), lack of a Fox retrans battle impacting pricing behavior early in 2012, political advertising boosting high-margin ad revenue growth and easy comps in Q3 2012 related to the 2011 hurricane."
Greenfield also has questions about the future of Cablevision's leadership.
"Given [CEO Jim] Dolan's interests outside of Cablevision (including two other public companies, AMC Networks and MSG, with MSG set for a brutal carriage battle with Time Warner Cable), along with his band (JD and the Straight Shots), we would not be comforted by Dolan taking a meaningfully larger operational role at Cablevision," he said. "We also find it hard to believe the company will be able to find a talented operating executive to join until the ‘whole story' surrounding Rutledge and [Cableivision President John] Bickham's departures becomes clear. "
And while Rutledge's departure spurred some speculation that the Dolans might sell Cablevision, Greenfield doubts that.
"While we would love to believe that the operating management departures at Cablevision would spur the Dolans to put the company up for sale (would yield a stock price multiples of current levels with Time Warner Cable the logical buyer), we believe the Dolans are not interested in selling the cable division and are focused on improving operational performance and resuscitating their stock price," he said.