Watching the moves of activist hedge fund managers can give onlookers up-to-date information on how an investment firm is committing its capital, and it pays to keep a close eye on a fund’s SEC disclosures; discover the secrets of piggyback investing here.
The move
Billionaire Mario Gabelli disclosed a 19.1mm position in Cablevision Systems Corporation (NYSE:CVC) on the 29th of May, up almost 8.7mm shares from the amount that the fund reported holding in its portfolio at the end of March this year.
What’s it mean?
The 13D indicates that Gabelli’s family of funds now holds a stake in Cablevision Systems Corporation (NYSE:CVC) that exceeds 5%. Despite Gabelli’s exuberance, the $4.1bn cable operator has struggled to gain positive mention from Wall Street, as firms like Citi, Baird, and Wunderlich securities have given a Neutral or Hold rating to the company in the past three months.
Cablevision Systems Corporation (NYSE:CVC) saw 50,000 video, 5,000 high-speed data, and 10,000 voice customers leave in that quarter alone, amongst increasing competition from streaming service providers like Hulu and Netflix.
Would we have expected earnings to improve pre-Q1 announcement?
Not likely, as seasonal advertising revenue would surely decrease. In early May, Cablevision Systems Corporation (NYSE:CVC) announced another disappointing quarter, this time undercutting estimates by $0.13 and falling into negative territory once again. Revenue missed slightly but still dropped compared to the same quarter last year. These numbers now contribute to a forward price-to-earnings multiple that jumped to 38 compared to its trailing counterpart of 26, displaying analysts’ downward revisions of future earnings for the remainder of 2013.
From a technical perspective, Cablevision Systems Corporation (NYSE:CVC) has seen impressive growth stretching back twelve months, up over 30%. However, year-to-date performance since the start of 2013 has been a meager 3%, especially given the overall market’s bullish rise. For an investor like Gabelli, the lackluster appreciation could be a perfect opportunity to collect shares, and Cablevision’s 3.9% dividend yield could soften the blow of flat movement in the future.
Who are its key peers?
Time Warner Inc (NYSE:TWX) is another networking giant that finds a home in Gabelli’s portfolio, with $150mm of GAMCO’s assets devoted to the media company. Time Warner Inc (NYSE:TWX) relies heavily on its cable networks, as those operations account for about 70% of total cash flow. Time Warner Inc (NYSE:TWX) has a much more contained PE of 10, adjusted down after an earnings beat at the beginning of May. Time Warner Inc (NYSE:TWX) actually saw its network’s division revenue climb 3% in that quarter, while Cablevision lost another 5,000 video customers. As an income investment, Time Warner Inc (NYSE:TWX) provides a respectable dividend yield of 1.9%, although still significantly under Cablevision’s yield.
Cablevision also finds competition from satellite cable operators, predominantly in the form of DIRECTV (NASDAQ:DTV) and DISH Network Corp (NASDAQ:DISH).
DIRECTV (NASDAQ:DTV) stands out as GAMCO’s top portfolio position, receiving a $280mm investment from the fund, while his allotment for DISH Network Corp (NASDAQ:DISH) is roughly half of that. DirecTV has not taken a backseat to streaming content stealing subscribers; it has indicated some interest in purchasing Hulu, although KKR and Silver Lake Management have recently put in their own bids. The company began May with an earnings beat, showing revenue that grew 8% compared to the same quarter last year.
Dish did not fair as well, disappointing analysts by over 11% compared to estimates, although it added 66,000 new broadband subscribers and 654,000 new pay-TV subscribers (an improvement year-over-year).
Final thoughts
Although sell-side analysts remain largely neutral on the firm, Gabelli’s significant increase in shares in May show his support when others are fleeing. For example, Buffett has subscribed to this same methodology in the past, and we’ll be watching Cablevision moving forward, in addition to Time Warner Inc (NYSE:TWX), DirecTV and Dish.
Disclosure: none
