May 02, 2017 - 8:37pm EST by
2017 2018
Price: 39.19 EPS 0 0
Shares Out. (in M): 4,730 P/E 0 0
Market Cap (in $M): 189 P/FCF 0 0
Net Debt (in $M): 59 EBIT 0 0
TEV ($): 248 TEV/EBIT 0 0

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As has been well established in prior vic writeups on comcast / cable players, CMCSA has an attractive business model and its operating leverage creates a compounding effect as revenue grows over time. Despite being a consensus long, we think at current levels CMCSA equity is reasonably attractive in this market. CMCSA is primarily an infrastructure cable asset with significant barriers to entry and a long runway for growth trading at a reasonabe (relative to peers / market) valuation of ~8.3x consensus 2018 EBITDA / ~12.5x EBITDA-capex / 5.5% unlevered FCF yield / ~6.0% LFCF yield. We see this as a long-term investment rather than an event-driven equity, though potential equity positive catalysts include (1) churn benefit from entry into wireless, (2) potential roll-back of net neutrality - both from reduced risk of rate regulation and ability to monetize traffic from edge providers like NFLX, FB, GOOG, etc - though need to consider temporary vs. permanent changes, (3) potential tax reform (incl capex deductability or extension of bonus depr.). We see 40-50% total returns over 2-3 years from a combination of capital return and multiple/fcf yield re-rate as business meets/outperforms estimates and would opportunistically add on dips. Risks include silly M&A, overbuilds by competitors like Altice USA, increased broadband regulation, NBCU business underperformance.

Key pros/cons:

[+] Comcast's cable business is a regional oligopoly/monopoly with infrastructure economics - significant runway for incr broadband penetration and price improvements over time

[+] Ability to monetize infrastructure for wireless / 5G - as wireless cos densify this can be an impt source of incremental revenue for comcast which has a footprint in over 40% of the US

[+] Enterprise business growing in double digits / has significant runway given current mkt share positions relative to ILECs

[+] Entry into wireless reduces churn of existing customers / could provide incremental revenue opportunity - we agree with the churn benefit from existing base if the mobile/wifi handoffs are smooth though we are skeptical of the rev opportunity which some sell-siders say is an incr $2/sh

[+ /-] NBCU business has attractive franchises and provides modest hedge on programming/content side, but movie business is lumpy/risky - we think NBC biz is inherently hard to predict given film lumpiness/tv ratings etc. and current strong film yr will create tough comps

[-] Pay-tv declines from cord-cutting/OTT launches pressure cable revenue growth - X-1 penetration is over half which has helped moderate vid declines for cmcsa vs industry. medium-term we assume video declines but think video is a lower margin revenue source given programming costs and broadband is a necessary substitute for streaming... over time cable rev composition improves as video becomes a smaller component.

[-] Competition in broadband market from fixed wireless / 5G mobile - think this is a long-term risk and would monitor trials both from incumbents and startups, though see 5G more in dense urban areas so max overlap could be limited


Entry into wireless

Potential tax reform / roll-back of net neutrality

I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise do not hold a material investment in the issuer's securities.


Entry into wireless


Potential tax reform / roll-back of net neutrality

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