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JAT Capital Initiates a New Position in Time Warner Cable in 1Q15

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JAT Capital and Time Warner Cable

The hedge fund JAT Capital Management took a $373 million position in Time Warner Cable (TWC) this quarter, accounting for 10.05% of its total 1Q15 portfolio.

According to aggregated 13F data, about 94 hedge funds created new positions in TWC in the first quarter of 2015. There were about 55 hedge funds with TWC in their top ten holdings in 1Q15. As well, a total of 220 hedge funds added to positions in TWC in this quarter.

In terms of dollar value invested, JAT Capital ranks sixth among funds holding shares of TWC in 1Q15. Dodge & Cox, Vanguard Group, BlackRock, and FMR are other top holders.

Time Warner Cable misses on both earnings and revenue estimates in 1Q15

Time Warner Cable (TWC) reported 1Q EPS (earnings per share) of $1.65, missing consensus estimates by $0.23. TWC revenue grew by 3.5% to $5.78 billion, driven by growth in Residential Services revenue, but it missed estimates by $50 million. Meanwhile, TWC reported that 1Q was its best-ever subscriber quarter.

In the first quarter of 2015, Business Services revenue grew by 16.9%. Residential Services recorded its highest year-over-year organic growth in about three years.

According to the Wall Street Journal, “Cable pioneer John Malone—the chairman of Charter’s (CHTR) largest shareholder, Liberty Broadband Corp. —called Time Warner Cable Chief Executive Rob Marcus in recent days to express Charter’s interest in pursuing friendly deal talks.” If this deal goes smoothly, Charter could become a dominant player in the cable space.

Performance of TWC as compared to benchmarks

From a portfolio management perspective, the primary reason for an investor to invest in a stock rather than in a benchmark—engaging in active investing instead of replicating a benchmark portfolio—is to earn better returns.

According to the chart above, TWC has outpaced its competitor Comcast (CMCSA). Meanwhile, it’s been undervalued compared to its benchmarks that include ETFs holding TWC. ETFs such as XLY and SPY have returned more so far in 2015 than TWC has.

The rationale for investing in TWC could involve its growing subscriber base, which was lagging until last quarter, and the speculation over a deal with Charter Communications.

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