Comcast Bumped to 'Buy'

Craig Moffett, an admitted skeptic about Comcast's integration of NBCUniversal and Sky, has put those concerns to the side and this week upgraded Comcast's stock to "Buy" along with an increased price target.

Moffett, who previously affixed a "Neutral" rating to Comcast, remains concerned about the challenges faced by both NBCU and Sky. But he likewise believes that Comcast's share price should be higher based in large part on the continued strength of its cable franchise alongside the lack of value being assigned to NBCU and Sky. Moffett also raised the target price on Comcast shares to $52 from $49.

Moffett still doesn't see the logic of pairing NBCU with Comcast's business and the addition of Sky (particularly at the steep price that Comcast paid for it). He noted that the company's "portfolio construction remains problematic."

While Sky and NBCU both face "secular headwinds" replete with competition and technological disruption, Comcast's cable business enjoys a competitive advantage with its broadband service, helping to offset a declining pay-TV business that has become a less important piece to the puzzle, anyway, he wrote.

Sky and NBCU priced at 'less than zero'
"The contrast between cable and media is stark," Moffett explained. But he believes even the media side of Comcast's business is getting less credit than deserved.

Comcast's cable business alone could account for $382 billion of enterprise value by the end of 2025, up nearly $100 billion over the current total, consolidated adjusted enterprise value, the analyst reckons.

At Comcast's current valuation, either NBCU or Sky "is arguably being priced at less than zero," Moffett wrote. "Even with a conglomerate discount, Comcast is too cheap on any reasonable sum-of-the-parts valuation," creating a "compelling mis-valuation."

Comcast notably has underperformed "pure-play" operator Charter Communications by 34% over the past year, a somewhat fair view given that NBCU "faces a difficult slog in the pivot to Peacock" as its cable networks become the "most challenged" piece of the programmer's portfolio, Moffett said.

But the good news, he argued, is that NBCU's collection of assets provides it with a "more credible path" to the direct-to-consumer world than just about any media company other from The Walt Disney Company.

"While all of those considerations justify a discount [on Comcast shares]... they don't justify a discount this large," to the point that NBCU or Sky are essentially tossed in for free, Moffett noted. Even with a heavy 20% conglomerate discount, he believes Comcast should be trading in the $52 range.

Comcast's closed at $44.28 per share, up 3.8%, on Tuesday, when Moffett announced the upgrade. Those shares were trading at $44.63 as of mid-day trading today.

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— Jeff Baumgartner, Senior Editor, Light Reading

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