Is It Time to Panic About Time Warner Cable?

Time Warner Cable (NYSE: TWC) doesn't have the best reputation among its customers, but all that matters to investors is whether or not the company can make shareholders money through stock appreciation and dividend payments. Let's take a look at the Time Warner Cable situation and compare the company's potential to that of Comcast (CMCSA 1.57%) and Charter Communications (CHTR 2.04%).

Good news, bad news
The good news is that Time Warner Cable's third-quarter revenue increased 2.9% year over year with residential revenue improving 0.7% and business services revenue improving 20.5%. Residential average revenue per unit also increased 2% to $105. However, Time Warner Cable saw a decline of 117,000 in total customer relationships, which stemmed primarily from the company's long-running dispute with CBS.

On the residential side, video revenue declined 4.5% and voice revenue slid 6%, but high-speed data revenue jumped 14.2%. Time Warner Cable also launched IntelligentHome in the third quarter. This allows you to use your smartphone, laptop, or touchscreen to keep tabs on your system anytime, anywhere. At the end of the quarter there were 32,000 customers, and that number is likely to grow.

Customer service is a huge drawback for Time Warner Cable. Earlier this year, Business Insider ran a story on "The 15 Most Frustrating Companies in America." Time Warner Cable ranked No. 2, with poor call center service as the primary culprit. Another issue was customers paying higher fees despite dissatisfying television service.

I'm a Time Warner Cable customer, and my experience has been hit or miss. On the positive side, it's better than DSL. On the negative side, the Internet/phone connections go out for a few minutes about five to seven times per week, customer service representatives have "accidentally" hung up on me while transferring me to another department on numerous occasions, and one service technician opted to use the commode during his visit, leaving behind an unpleasant odor. While I'm just one customer, these experiences in combination with the company's atrocious reputation for customer service don't lead to much optimism. Perhaps Comcast is a better-run operation.

Comcast: Good momentum and diversification
Comcast operates in many areas, including cable, broadcast television, filmed entertainment, and theme parks. Year to date, Comcast's revenue has increased 2.4% year over year. If you exclude the Super Bowl and the Olympics, revenue increased a more impressive 5.6%. Over the same time frame, operating cash flow improved 7.49%. If you exclude the Olympics and pension costs, operating cash flow grew at an 8.8% clip. Free cash flow jumped 15.5%. Other impressive numbers include 11.6% growth in operating income and a 7% increase in EPS. If you exclude gains on asset sales, then EPS grew 29.3%.

We'll get back to Comcast in a moment, but first this short break to bring you a quick overview on Charter Communications.

Charter Communications: Potential at a steep price
In the third quarter, Charter Communications saw revenue increase 5.4% year over year to $2.1 billion on a pro forma basis, primarily due to growth in video, Internet, and commercial revenues. If you include the Bresnan acquisition, revenue jumped 12.7%. Total residential customers improved 46,000, compared to the addition of 26,000 customers in the year-ago quarter. Residential primary units increased 100,000, compared to the addition of 60,000 units in the year-ago quarter. Residential revenue increased 5.1%, compared to a 1.6% increase in the year-ago quarter. Commercial revenue improved 20.4% on a pro forma basis, thanks to higher sales to small to medium-size businesses and carrier customers.

President and CEO Tom Rutledge recently stated that the company has greatly improved in competitiveness and value, which is driving growth in residential and commercial businesses. For fiscal year 2014, Charter Communications expects to grow market share and cash flow by expanding all-digital programming and offering new products.

Hmm... sounds interesting. Let's take a look at some fundamental comparisons prior to jumping on the Charter Communications bandwagon.

Key metric comparisons
Up until this point, it would seem as though Comcast or Charter Communications is likely to offer the most investment potential, but let's take a look at some numbers prior to forming that conclusion:

Source: Company financial statements.

Time Warner Cable offers a generous yield, it's trading at a fair valuation, and it's decent at turning revenue into profits. On the other hand, debt management is poor. Comcast offers similar numbers, but with much better debt management. As far as Charter Communications goes, well... let's see. It sports a negative profit margin, it doesn't offer any yield, it's atrocious at managing debt, and it trades at an extreme premium. These types of companies do offer tremendous potential because a sustainable turnaround would lead to significant stock appreciation. However, these types of turnarounds are rare, and this is a gamble. Foolish investors, aka savvy investors, don't gamble. 

The bottom line
Time Warner Cable has lost customers and its poor customer-service reputation is an ever-present burden. You don't need to panic about Time Warner Cable, but it's not likely to be the best long-term investment in this group. Charter Communications is fundamentally unsound. In my opinion, Comcast is the best company in this group by a wide margin. It's growing, it's diversified, and it's fundamentally sound.