Comcast is a Great Deal Even If It Comes with Risks

 

Comcast has very high ambitions as it wants to expand its business. But, its shareholders want that the company should focus more on its key businesses like high-speed broadband services, cable TV, to increase its profits. However, Comcast is focusing on its plans to buy other companies.

Comcast

Since February 27, the shares of Comcast have fallen at 14% as they bid to buy Sky, which is a satellite TV operator in UK, by paying a huge sum of $31 billion. The offer seeks to break Sky’s deal with FOXA (21st Century Fox) which holds a stake of 39% in the company.

Investors of Comcast fear that it may get into the bidding battle with Fox that may result in overpay for Sky as it now trades at a premium of 4% to Comcast’s bid. Apart from this, there are some possibilities that the Comcast’s ambitions would be much higher which may also challenge Walt Disney’s deal for some stake in Fox, and Comcast may bid for such assets owned by Fox.

According to some market analysts, Comcast is underrated because its share trade nearly 7.5 times in 2018 as per its earnings before taxes, amortization and depreciation. Despite the effect of cord cutting on the company, it did well in 2017.

Comcast shares are traded at a discount as compared to its major telecommunications rival Charter Communications which valued 10 times higher than projected. Verizon’s and AT&T’s shares are traded at a small premium though they are considered having small franchises due to cut throat competition in the wireless market. Due to its fierce buyback program, Charter Communications is preferred by investors.

Investors are getting NBCUniversal business for free if Comcast broadband and cable businesses were estimated like Charter’s. NBCUniversal, a group of cable which includes its cable properties like CNBC, Bravo, USA, could have a worth around $80 billion, if estimated at 10 times Ebitda.

Since the company is run under the authority of CEO Brian Roberts, son of Ralph Roberts, who was the founder of the company, investors’ influence on the company is limited. So, he has super-voting stock that provides him with 33% vote in spite of having an economic holding of mere 1%.

The biggest trouble on the Wall Street is that CEO of Comcast has lost its economic regulation as he always looks to challenge the heavyweight companies like Amazon.com, Netflix, Alphabet (Google’s parent company). Still, there is a concern that even if the deal to obtain Sky or Fox is not successful, the company can make another potential deal.

Earlier Comcast was perceived as a promising company with its low pricing and had attached media business which attracted a bulk cash and stock buyers. But, with the passage of time Comcast has become more ambitious to become a no.1 global media company,” says Craig Moffett who is a founding member of MoffettNathanson. He further says, “In what world does Comcast think it is better to pay 12 times Ebitda for Sky in when its own stock trades for 7.5 times?”

Comcast increased its dividend at 21% this year to the yearly rate of 76 cents and yields 2.2%. The company also aims to buy back more than $5 billion which disappoints the Wall Street amid its rising free cash flow.

According to Moffett, Comcast’s core business is doing good despite its Cable-Tv challenges. Majority of investors understand that the cord-cutting doesn’t affect the real business of the company as they need to focus on broadband as cable is not their main business.”

Comcast lost about 186,000 video customers while getting a million high-speed residential customers. Its broadband revenue rose 9% in the last year. Comcast has little broadband competition as it offers high speed internet at less price which is great for any customer who is looking for new Internet connection.

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