Why Undervalued Comcast Stock Is a Top Pick

Bulls Say

• Comcast’s cable networks provide a platform to easily meet customers’ growing bandwidth demands. This should drive steady market share gains and ensure that recurring revenue and cash flow remain strong.
• Dense fixed-line networks provide Comcast with the opportunity to push deeper into the business-services market and play a crucial role in the deployment of 5G technology.
• With direct access to consumers across the U.S. and Europe, few companies have as many ways to monetize content investments. This should make Comcast a destination for the best writers, directors, and actors.

Bears Say

• The Sky acquisition exposes even more of Comcast’s business to the traditional TV model. As more consumers turn to online alternatives, the company will struggle to post any revenue growth.
• Comcast’s reputation for customer service is poor at best. If 5G wireless provides a credible alternative, millions of customers are ready to switch internet access providers.
• With more than $90 billion in debt, Comcast may not have the financial flexibility to pursue major strategic opportunities.

Morningstar Analyst Mike Hodel Says

Comcast’s CMCSA core cable business, which accounts for more than half of the company’s value, enjoys significant competitive advantages but is likely to see growth slow as competition for incremental customers heats up. NBCUniversal isn’t as well positioned but holds unique assets, including core content franchises and theme parks, that should help the transition away from the traditional television business. Overall, we expect Comcast will deliver modest growth with strong cash flow for the foreseeable future.

Comcast’s cable business has steadily gained broadband market share from its primary competitors—phone companies like AT&T T and Verizon VZ—as high-quality internet access has become a staple utility. We estimate the company has increased broadband market share in the areas it serves to about 67% from about 59% five years ago and 52% a decade prior. Comcast’s customer base in the typical market area is twice the size of its rivals’, with that gap far wider in areas where the phone companies haven’t invested in recent years. With its network that can be upgraded at modest incremental cost, we expect internet Comcast will remain the dominant provider in many parts of the country and compete well in areas where the phone companies are building fiber. The high margins on internet access should offset the decline in the traditional TV business, where margins have plunged in recent years.

Comcast has managed NBCU exceptionally well, more than doubling cash flow since the 2011 acquisition of the business through 2019, before the pandemic. The company has invested aggressively in content, improving the performance of both the broadcast network and the movie studio. The TV business is evolving, which will present challenges for NBCU, but we believe it has the breadth of assets to compete effectively. The decision to merge the TV business into a single unit was smart, in our view. It should allow NBCU to make better content decisions and place programming on whichever platform—broadcast, cable, or the new Peacock service—will deliver the best returns. Adding Sky’s capabilities outside the United States should add to Comcast’s ability to distribute content.

Key Proprietary Morningstar Metrics

• Fair Value Estimate: $60
• Star Rating: 5 Stars
• Economic Moat Rating: Wide
• Moat Trend Rating: Stable