Pay-TV excels in 1st quarter, stocks undervalued?

By Yinka Adegoke

NEW YORK (Reuters) -Cable and satellite companies may be worth more than their current share prices suggest, as surprisingly strong subscriber growth during the first quarter shows their resilience despite tougher competition and a weak U.S. economy.

Most analysts had assumed the slowdown in the U.S. housing market, coupled with key inflationary factors such as rising gasoline and food prices, would see cable companies losing customers during the period. They also forecast tepid growth for satellite and telephone companies.

Instead, big publicly traded pay-TV companies have so far added more than 700,000 subscribers between them.

The subscriber additions and an increase in average revenue per subscriber (ARPU) raises questions about whether cable and satellite TV company stocks are properly valued and whether a more severe economic slowdown will have as significant an impact as many projected.

"I think the economic downturn got overplayed," said Kaufman Bros analyst Todd Mitchell.

In the first quarter, Time Warner Cable Inc, Mediacom Communications Corp and Cablevision Systems Corp added a total of around 59,000 subscribers.

Phone companies AT&T Inc and Verizon Communications Inc added 411,000 TV subscribers, while satellite TV operator DirecTV added around 275,000 during the quarter. All outperformed analyst expectations, with the exception of DISH Network, which added a very weak 35,000 subscribers compared with 310,000 a year-ago.

Although the largest U.S. cable operator Comcast Corp lost 57,000 subscribers from its 24 million base, it sold hundreds of thousands of new digital video, phone and Internet services and outpaced analysts' forecasts.