Cox shares drop after analyst
downgrade
Copyright 2002
Knight Ridder/Tribune Business News
Copyright 2002 Atlanta Journal and Constitution
Atlanta Journal and Constitution...08/06/2002
From LexisNexis
Kathy Brister
from CED Broadband Direct, August 6, 2002
Cox Communications shares fell more than 19 percent
Monday after two financial analysts downgraded the Atlanta-based
cable company's stock.
Credit Suisse First Boston analyst Lara Warner changed her outlook
from "strong buy" to "hold," estimating Cox
would face higher upfront costs for hooking up customers. Meanwhile,
Cox was cut to "accumulate" from "strong buy"
by analyst James Goss at Barrington Research in Chicago.
Warner's recommendation is linked to a 19 percent hike in selling,
general and administrative costs that Cox reported in second-quarter
earnings, released last week. Contained in that line item is the
amount Cox pays to connect some customers.
Her thinking goes like this: If Cox hooks up services in a home
its technicians haven't visited before, the cable company can
spread that installation cost over several years through depreciation.
It does that by accounting for the cost as capital expenditure,
which is seen as a long-term improvement, rather than as general
maintenance, which is short-term and must be accounted for immediately.
The next time Cox visits the same home -- even if it has changed
owners -- to install any of the same services, it must account
for the cost right away.
That wasn't much of an issue when Cox only offered simple-to-install
basic video and its connection cost was $50 or less. Now the company
offers more complex services. It shells out about $55 for a digital
video connection, $110 for a high-speed Internet connection and
$110 for a cable telephone connection.
Over time these costs will eat into Cox's operating cash flow,
Warner said. Operating cash flow is used by Wall Street to assess
the value of infrastructure-heavy media companies.
Cox disputes Warner's financial model, claiming it doesn't take
cost-cutting measures into account. The company is encouraging
customers to self-install cable modems, and it is passing along
more of the install cost to customers in an effort to curb costs,
said Cox spokeswoman Ellen East.
Nonetheless, investors sent Cox stock down $4.83 Monday, to close
at $20.19. Its stock has dropped more than 40 percent during the
past 12 months.
Fellow cable providers dropped Monday as well. Comcast fell about
14 percent, closing at $16.30. It is down about 48 percent for
the year.
Charter fell 11 percent, closing at $2.64. It is down nearly
87 percent for the year.
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