Comcast reported another good quarter with growth in the dominant cable business sustaining in the high single digits with margins continuing to expand.  Encouragingly, the much smaller but still material media businesses at NBC Universal and Sky are showing clear signs of emerging from the severe impacts of the pandemic.  It seems like most every quarter we are happy with Comcast’s results, especially at the cable business.  This is a testament to the superior competitive position the company has in broadband services and an excellent job by management to support and exploit the company’s edge.  It also seems that most every quarter the company reports good results and the stock trades lower.  This changed last quarter after an earnings beat and it happened again this quarter.  We think this means the perception of the company is changing and the value we have felt could be created may be finally emerging. 

Comcast has been in the penalty box since its acquisition of Sky and aggressive battle with Disney for control of much of the Fox Corporation media empire.  Northlake agrees with many investors that Comcast should not be diluting the outstanding financial growth profile offered by the broadband business.  What is done is done, and over the next several quarters Sky and the legacy media businesses are poised for big cyclical upside.  In addition, the company is one quarter closer to reaching its deleveraging goals and turning toward share repurchases.  On the 1Q21 conference call, CEO Brian Roberts mentioned his excitement at getting close to the resumption of the buyback.  There is lingering concern that Roberts is an empire builder, so reiterating the promise made last quarter to return to buybacks in 2021 is a positive sign.  It is also another step toward rebuilding investor confidence in Comcast, which was harmed by management’s capital allocation decisions rather than the excellent operating execution the company consistently exhibits.

We are raising our target on Comcast to $64, up 14%, by rolling our calculation to using 2022 estimates and giving the company credit for 2021’s free cash flow.  Last quarter, our target was $58 based on an average of 2020 and 2021 EBITDA with no credit for free cash flow.  We are making these adjustments because we have more confidence in the company’s outlook.  A feared slowdown in broadband adds after the huge rush from new subscribers during the pandemic does not appear to be in the cards.  As noted above, we also see green shoots in the COVID-impacted NBCU and Sky businesses.

We continue to monitor several risks.  AT&T, Verizon and T Mobile are making big efforts to supply broadband through fiber buildouts and 5G fixed wireless.  More competition is never good, although it might keep the government from taking too tough action against the “cable monopoly” under a Democratic-led FCC.  The FCC and Congress could still hurt the cable business through regulations or legislation with the primary threat being price controls under the auspices of net neutrality. 

CMCSA 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.  CMCSA is a net long position in the Entermedia Funds.