Not Exactly Optimum From Cablevision

Not exactly an "optimum" quarter for Cablevision Systems CVC, was it? The Bethpage, N.Y.-based company reported earnings of 31 cents per share on $1.69 billion in revenues. Wall Street expectations had been for 42 cents per share on $1.87 billion in revenues. Cablevision President and CEO James L. Dolan commented: "With the successful completion of the AMC Networks spin-off, Cablevision's consolidated results are now primarily driven by our telecommunications operations, which experienced solid revenue growth in the second quarter due largely to our Bresnan properties. The company also continued to generate healthy free cash flow. Moving forward, as we roll out new innovations like our iPad app and DVR Plus, Cablevision is more focused than ever on the strength of our telecommunications business and on creating additional value for our customers and shareholders," concluded Mr. Dolan. Cablevision has long suffered from what is known as the "Dolan discount." Sure, the decision to spin AMC Networks AMCX and Madison Square Garden MSG have been beneficial for shareholders. MSG shares have gained ~18% in the past year, and were up significantly more before the equity markets decided to die in the past couple of weeks. Still, Dolan is not a well liked man, by shareholders, the Wall Street community, and the general public. He has made some precarious decisions with the New York Knicks and Rangers (owned by MSG) over the years, and people remember his awful decisions. As such, shares of Cablevision have always had the "Dolan discount." The company said it lost 23,000 video subscribers, as it faces competition from Verizon Communications VZ FiOS service. On the conference call, the company said Verizon loses money on every FiOS customer it connects. Still, the company did make an important move to move away from the cord and add to its mobile platforms. The company announced this morning it would be launching a new Optimum App for the Apple AAPL iPhone and iPod touch, to go along with its app for the iPad that was launched in April. Trading at less than 10 times 2012 earnings, and sporting a 2.9% dividend yield, shares are relatively cheap. If Cablevision can not meet or beat its numbers, then it will be discounted even more. This time, without James' help. ACTION ITEMS:

Bullish:
Traders who believe that Cablevision will prove stronger over the long term might want to consider the following trades:

• Cablevision is incredibly cheap. It has over 3.3 million subscribers in the Northeast, one of the richest areas of the country. It has incredible properties under its belt and should benefit if it can manage costs and expectations.

Bearish:
Traders who believe that Cablevision will continue to move lower may consider alternate positions:

• It lost 23,000 subs in the quarter. If it cannot compete with Verizon, Cablevision will lose a significant portion of its revenues, and could be a good short.

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