Time Warner Cable Inc. Annual Valuation – 2014 $TWC

220px-Time_Warner_Cable_logo.svgBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Undervalued Companies for the Defensive Investor Near 52 Week Lows – November 2014.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Time Warner Cable Inc. (TWC) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Time Warner Cable Inc. (TWC) is a provider of video, high-speed data and voice services in the United States with systems located in five geographic areas: New York State, the Carolinas, Ohio, Southern California and Texas. As of December 31, 2011, TWC served approximately 14.5 million customers who subscribed to one or more of its three primary services, totaling approximately 27.1 million primary service units. The Company offers its residential and business services customers video, high-speed data and voice services over its broadband cable systems. In January 2014, the Company announced that it has completed the acquisition of DukeNet Communications, LLC.

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 2/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion - PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 - FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years - FAIL
  4. Dividend Record – has paid a dividend for at least 10 straight years - FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - PASS
  6. Moderate PEmg ratio – PEmg is less than 20 - FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 - FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 - FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 - FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend - PASS
  5. Earnings growth – EPSmg greater than 5 years ago - PASS

Valuation Summary

Key Data:

Recent Price $145.21
MG Value $252.97
MG Opinion Undervalued
Value Based on 3% Growth $95.27
Value Based on 0% Growth $55.85
Market Implied Growth Rate 6.80%
Net Current Asset Value (NCAV) -$136.36
PEmg 22.10
Current Ratio 0.41
PB Ratio 5.21

Balance Sheet – September 2014

Current Assets $2,074,000,000
Current Liabilities $5,019,000,000
Total Debt $22,762,000,000
Total Assets $48,636,000,000
Intangible Assets $29,699,000,000
Total Liabilities $40,731,000,000
Outstanding Shares 283,500,000

Earnings Per Share

2014 (estimate) $7.38
2013 $6.76
2012 $6.97
2011 $5.02
2010 $3.67
2009 $3.07
2008 -$22.55
2007 $3.45
2006 $6.00
2005 $3.75
2004 $2.19

Earnings Per Share – ModernGraham

2014 (estimate) $6.57
2013 $5.81
2012 $3.30
2011 $0.49
2010 -$1.61
2009 -$3.25

Dividend History


Time Warner Cable does not qualify for either the Defensive Investor or Enterprising Investor.  The Defensive Investor has multiple concerns including the low current ratio, short dividend history, lack of stable earnings over the last ten years, and the high PEmg and PB ratios.  The Enterprising Investor is concerned by the high level of debt relative to the current assets.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities at this time.  From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from a loss of $1.61 in 2010 to a gain of $6.57 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 6.80% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Time Warner Cable Inc. (TWC)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Time Warner Cable Inc. (TWC) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

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