Time Warner Cable Inc (TWC), Charter Communications, Inc. (CHTR): How to Play the Potential Cable M&A Deal

Which one is a better buy now?

If Time Warner Cable could be a good target for John Malone, its peer Cablevision Systems Corporation (NYSE:CVC) could also be a potential target. Cablevision Systems Corporation (NYSE:CVC) had nearly 3.2 million video customers and more than 3 million high-speed data customers. Cablevision Systems Corporation (NYSE:CVC) is bullish about WiFi’s future, thinking that it would still be one of Cablevision Systems Corporation (NYSE:CVC)’s strategic initiatives. Around a million customers are using 80,000 Optimum WiFi access points. In the second quarter, the company expected to reduce its level of spending and increase its advertising revenue, leading to a double-digit sequential AOCF in the second quarter. The company had the weakest balance sheet among the three companies. As of March 2013, it had negative equity of nearly $(5.7) billion, $580 million in cash and investments, and as much as $9.8 billion in debt. However, billionaire Mario Gabelli likes Cablevision Systems Corporation (NYSE:CVC) a lot. He believed that Cablevision Systems Corporation (NYSE:CVC) could generate around $6.3 billion in revenue and around $1.6 billion in EBITDA.

Among the three, Time Warner Cable could be most likely the acquisition target because of its lowest valuation. At $112.50 per share, Time Warner Cable is worth around $32.7 billion on the market. The market values Time Warner Cable at only nearly 7.4 times its trailing EBITDA. Cablevision ranked second, with around a $5.1 billion market value. It is valued a bit higher, at 8 times its trailing EBITDA. Charter Communications is the most expensive company. At $127 per share, it is worth $12.85 billion on the market. It is valued at 9.5 times its trailing EBITDA.

My Foolish take

To play the buyout rumor, Time Warner Cable could be a good pick for average investors with its low valuation. If Time Warner Cable had a similar valuation to Charter Communications, it could be worth more than $144 per share, a 28% premium to its current price.

The article How to Play the Potential Cable M&A Deal originally appeared on Fool.com is written by Anh Hoang.

Anh HOANG has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Anh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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