On Thursday, Pivotal Research adjusted its outlook on Comcast Corp (NASDAQ:CMCSA), raising the price target to $54.00 from the previous $47.00, while maintaining a Buy rating on the stock. The revision follows Comcast's third-quarter earnings, which surpassed expectations, particularly in cable data subscriber growth and revenue metrics.
The company reported a net increase of 9,000 data subscribers in the third quarter, excluding the impact from ACP turnoffs, suggesting that the decline in cable data losses may be stabilizing. This marks the first year-over-year improvement in net new data results since the second quarter of 2021. Additionally, Comcast's residential connectivity revenue grew by 6%, surpassing the forecasted 4%. Cable EBITDA saw a 1% increase, content revenue surged by 19% due to strong Olympic results, and content EBITDA declined by 9%, which was still better than the anticipated 15% drop. Free cash flow was also strong, coming in at $3.4 billion, exceeding the $3.1 billion expectation.
Further bolstering Comcast's outlook is the consideration of spinning out its cable network businesses, a move that could be seen as positive due to the structural challenges and need for consolidation within the industry. The potential spin-off aims to cut costs and achieve greater scale, possibly allowing for a direct consumer approach.
The analyst highlighted Comcast's competitive edge, noting the company's ability to offer a wireless/wireline converged bundle to 63 million homes, unmatched download speeds, and the waning impact of Fixed Wireless Access (FWA) as it may be limited to 10-15% of U.S. households. These factors, combined with the ability to increase prices, could significantly elevate cable valuations from their currently depressed levels.
In light of these results, Pivotal Research has updated its forecasts, reducing the expected data subscriber losses and increasing financial projections for cable and content. The new price target is based on a conservative 7X 2025 EBITDA multiple for distribution and 7.5X for content businesses, factoring in a 10% conglomerate discount. The firm reiterates that the distribution multiple could be seen as very conservative if data net new subscribers turn positive. At the new $54 target, Comcast would trade at 7.7X 2025 EBITDA, 13.8X EPS, and 13.5X 2025 free cash flow.
In other recent news, Comcast Corporation (NASDAQ:CMCSA) reported a 6.5% growth in total revenue to $32.1 billion in its third-quarter financial results, largely contributed by the Paris Olympics. The company also highlighted a strong performance in media, driven by subscriber growth in its streaming service, Peacock. Despite a competitive landscape, Comcast has outlined strategic initiatives for expansion, including its broadband and wireless services, and the development of the Epic Universe theme park, expected to open on May 22, 2025.
The company disclosed plans to enhance its competitive positioning in broadband, aiming to pass over 1.2 million new homes in 2023, and participate in the BEAD program. However, Comcast faced a net loss of 87,000 broadband subscribers, attributed partly to the end of the Affordable Connectivity Program (ACP). On a brighter note, the company's wireless revenue grew by 20%, with over 1.2 million new lines added, and its Content & Experiences segment witnessed a 19% revenue increase to $12.6 billion.
InvestingPro Insights
Comcast's strong performance, as highlighted in the article, is further supported by real-time data from InvestingPro. The company's P/E ratio of 11.53 suggests that it may be undervalued compared to its peers in the media industry. This aligns with the analyst's view that cable valuations could significantly increase from their current levels.
InvestingPro Tips reveal that Comcast has been aggressively buying back shares and offers a high shareholder yield, which could be seen as a positive signal for investors. The company has also maintained dividend payments for 17 consecutive years and raised its dividend for 5 consecutive years, demonstrating a commitment to returning value to shareholders. This consistent dividend growth, coupled with the current dividend yield of 2.94%, may make Comcast an attractive option for income-focused investors.
It's worth noting that InvestingPro offers 8 additional tips for Comcast, providing even more comprehensive insights for investors looking to delve deeper into the company's prospects.
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