Things are heating up for several communications and cable businesses. Does this represent a buying opportunity for shares of Verizon and Vodafone? How about all of the companies eyeing Time Warner Cable Inc.? Let’s take a look.
Just this afternoon, Verizon Communications Inc. (VZ) received the go-ahead from the Federal Communications Commission (FCC) to buy back Vodafone Group Plc‘s (VOD) 45% stake in Verizon Wireless. Announced in September, the $130 billion cash and stock deal would be the third largest corporate takeover on record. The deal is expected to net a tax benefit for Verizon and allow Vodafone to pull out of the U.S. market to focus on existing structural problems in the U.K.
However, this doesn’t automatically mean that this is a buying opportunity across the board. Current, VZ is a C-rated hold in Portfolio Grader. The fact is that Verizon Communications has been struggling to firm up its financial statements for some time and institutional buying pressure has suffered as a result. VOD, on the other hand, is a B-rated Buy.
Meanwhile, the plot thickens on the race to acquire Time Warner Cable Inc. (TWC) within the CATV industry. Cox Communications Inc. has joined Charter Communications (CHTR) and Comcast Corp. (CMCSA) on the list of prospective bidders for Time Warner Cable. Privately-held Cox Communications is the third-largest cable-television provider in the U.S. (behind Time Warner and Comcast). Comcast and Charter Communications have also discussed the possibility of jointly buying Time Warner Cable and breaking up the company in order to satisfy antitrust regulators. In any event, TWC is becoming a more attractive takeover candidate by the day and I see this as a plus for current shareholders.
If you plug these three CATV players into Portfolio Grader, the two smaller players emerge as B-rated buys: CHTR and acquisition target TWC. I would hold off on adding CMCSA shares right now because the company is struggling with sales and earnings growth.
So it just goes to show that despite the hype caused by M&A activity, it always pays to do your research before adding any hot stocks.