Comcast Is Unable to Rationalize the Time Warner Cable Deal
After years of strong stock gains for the cable operators, the deal to buy Time Warner Cable (NYSE: TWC ) by Comcast Corp. (NASDAQ: CMCSA ) raises a lot of eyebrows that the company is overpaying for the assets . In light of the news that AT&T (NYSE: T ) is going to purchase satellite provider DirecTV (NASDAQ: DTV ) in a $50 billion deal, investors need to consider whether these deals are top ticking the market.
The odd part of the equation is that the companies' stocks have surged the last couple of years, while their revenues are seeing limited growth. In fact, Time Warner Cable now trades at a historically high 21x trailing earnings. The company has squeezed out higher profits from existing operations, but how long can that last with revenue only growing roughly 4% each year? Based on the chart below and the limited revenue growth, now doesn't appear the time to buy these stocks.
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Disclosure: Long T, DTV. Please read the disclaimer page for more details.