It is back to business as usual at Comcast (CMCSK) and investors have no reason to not like that.  The now scuttled acquisition of Time Warner Cable is definitely a lost opportunity but Comcast retains many strengths.  We always viewed the acquisition as a “nice to have” as opposed to a “need to have.”  Comcast’s model of mid single digit revenue growth, slight margin expansion, and stable capital spending intensity leads to 15% plus growth in free cash flow.  On top of an exceptionally strong balance sheet, management retains many options to drive shareholder value.  We expect steady dividend growth and larger share buybacks to dominate the capital allocation debate through 2016.  At that point, larger acquisition attempts might be on the table under a new administration and FCC.

Often overlooked when analyzing Comcast is the company’s ownership of NBC Universal.  This collection of TV networks, theme parks, and move and TV production studios had a great quarter.  Certainly, NBCU deserves to be valued similarly to its peers such as Time Warner, 21^st Century Fox, and other TV network owners.  Putting an industry average 10X EBITDA multiple on NBCU leaves the core Comcast cable business trading at 10-15% discount to its peers.  Peers that are smaller, less profitable, more financially leveraged, and in most case growing more slowly.

Even without the benefit of using what seems to be a lot of excess free cash flow, Comcast shares can rise to themed-$60s just by closing the valuation gap vs. other cable and telecommunication companies.  Using excess financial capacity on acquisitions or share repurchases provides more upside particularly looking into 2017.

CMCSK is widely held by clients of Northlake Capital Management, LLC, including in Steve Birenberg’s personal accounts.  Steve is sole proprietor of Northlake, a registered investment advisor.  Northlake’s regulatory filings can be found at www.sec.gov.  CMCSK is a net long position in the Entermedia Funds.  Steve is portfolio manager and managing partner of Entermedia, long/short equity hedge funds focused on media, entertainment, leisure, communications, and related technologies.