Comcast (CMCSA) remains a unique investment, winning on all sides of the pandemic-impacted economy.  Broadband continues to have a tailwind as the value and necessity of a high-speed internet connection has been enhanced, likely permanently in our view.  NBC Universal is a cyclical business and just at the start of its recovery in theme parks, TV advertising, and movies.  Financial performance is strong with the balance sheet repaired after earlier acquisitions and focus shifting to share buybacks and continuing dividend growth.  With strong execution by a stable and experienced management team, CMCSA shares offer relatively low volatility and double-digit upside potential.  We maintain our target price of $64 based on slightly higher 2022 estimates.

The second quarter report offered a few fresh insights.  First, broadband demand remains good but the big upside in net adds is coming from lower churn this year.  We think this shows how the pandemic has raised the importance of a broadband connection.  It is possible that lower moves and government programs are providing a temporary boost.  Second, Peacock will be rolled out in Europe in the markets where Sky is active (UK, Germany, Italy).  Peacock sign-ups and usage are getting a boost in the U.S. from the Olympics.  Management has not committed for a massive investment cycle at Peacock.  This could be a risk given how much competitors like Netflix, Warner Brothers Discovery, Amazon and others are spending.  Comcast sees Peacock as complementary rather than a full substitute to its linear networks.  This means more focus on advertising and less on paid subscribers.  Third, Xfinity Mobile has achieved profitability sooner than expected.  The swing could be $500 million or more in the next few years, meaningful even at Comcast’s massive scale ($34 billion in EBITDA in 2021). Mobile may also be helping broadband thru double play bundles and lower churn.  Finally, theme parks are recovering ahead of schedule and are at 2019 profit levels despite attendance still barely over 70% of pre-pandemic levels.  The park in Beijing will open soon and at first that will pressure profits.  It adds a nice growth opportunity beginning in 2022.

Comcast’s balance sheet carries a lot less debt relative to cash flow than other cable and entertainment companies.  The company is now buying back stock but there will be tens of billions of excess capacity if the company maintains current leverage as EBITDA grows over the next several years.  The positive is a big boost in the buyback could be coming.  The negative is investors will still worry that Comcast is looking for a big acquisition to bolster Peacock and protect NBC and its cable networks.

We also are continuing to monitor increased competition in broadband from AT&T, T Mobile, and Verizon as they build out fiber and 5G fixed wireless.  The current administration also is likely to keep the regulatory pressure on.  Comcast shares have done well but always seem to have a series of risks that investors can’t let go.  At one time, we were worried these risks would derail the shares in 2021.  The timing has now shifted to 2022.  For the next few quarters, this leaves a window for continued gains in CMCSA shares, especially if the company provides a big boost to its buyback in 4Q21 when the next capital allocation update is due.

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.