Comcast reported mostly in line results for its 2Q15. Nothing changes in the long-term story, which we continue to like very much.  Comcast offers steady and predictable, if modest growth, a great balance sheet, double digit growth in free cash flow, and shareholder friendly management that acts with an element caution.  Comcast is composed of two business units, the much larger cable systems business for which it is known, and NBC Universal, which operates TV networks, theme parks, and a film studio.  We value Comcast by using sum of the parts methodology.  Placing an industry average multiple of operating cash flow on its NBC Universal entertainment assets leaves the cable business trading a significant discount to its peers.  Given Comcast’s industry leading subscriber, revenue, and free cash flow growth and industry leading balance sheet strength, we find this surprising.  Should Comcast’s cable business be valued in line with its peers, the stock can trade to at least the low $70s, plenty of upside to continue holding the shares in Northlake client accounts.

Comcast shares reacted poorly to the most recent quarter.  We think there are a few explanations.  First, the stock has been a big winner as witting at an all-time high immediately before the report.  As we have explained often on Media Talk, short-term reaction to earnings is usually about expectations.  Comcast faced a high expectation bar.  TV subscribers easily outperformed expectations falling much less than expected.  This is reassuring given the hand wringing over cord cutting.  The retention did come at a cost as customer service expenses were elevated.  That won’t change as Comcast is investing heavily to upgrade customer service.  This strikes us as a good investment given the value of a long-term subscriber and the real pressures on the cable bundle due to technological change.  Higher expenses are rarely forgiven on Wall Street so this aspect of the report likely contributed to the stock pullback.

A second disappointment was new broadband internet subscriber growth falling short of Wall Street estimates.  Management reassured that this was mostly about the timing and scale of promotions.  A bounce back next quarter should occur.  Broadband growth is critical to the long-term story for Comcast as it is the most profitable business line and growth can offset the maturation of the TV business.

Big upside was reported at NBC Universal, a sometimes overlooked business at Comcast that usually does not drive investor sentiment toward the shares.  Theme parks continue to grow rapidly, benefitting from new Harry Potter themed attractions.  Theme parks should get a further form the massive success of Universal’s franchise films this year including Fast and Furious 7, Minions, and Jurassic World.  The film studio reported huge upside even against heightened expectations.

Overall, we found the quarter to support of our bullish long-term view.  Comcast is a giant company with lots of moving parts.  Each quarter will have some hits and misses.  We would have preferred a cleaner quarter but we see nothing that changes the core fundamentals of the business or our target price in the $70s.

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.