Roberts: Comcast just beginning to grow

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NEW YORK -- Shares of cable giant Comcast Corp. jumped more than 60% last year, but many Wall Street observers believe that the stock's run is far from over.

Comcast chairman and CEO Brian Roberts also struck bullish tones Tuesday in his first investor conference appearance of 2007. Speaking at the 17th annual Citigroup Entertainment, Media and Telecommunications Conference in Las Vegas, he said 2006 was the most important and best year in Comcast's history as the firm's triple-play product bundle boosted subscriber growth and overall financial momentum.

"If you liked 2006, you're really going to like 2007," Roberts told attendees.

While Comcast will issue formal guidance for the new year only when it reports its fourth-quarter results Feb. 1, the CEO predicted it will add more revenue-generating units in 2007 than in 2006.

The cable giant has benefited from offering telephony service, which has reached only 4.5% penetration in Comcast's markets, meaning there are "years of growth" ahead for the company, Roberts said Tuesday.

The firm is not happy anymore with just offering one service, but wants to be seen as "the company that manages your home," he said.

While subscriber growth still might be on the rise, Comcast also is already working on the next big business opportunity, which, Roberts told investors Tuesday, lies in serving small- and midsize businesses. During the next five years, this business could contribute more than $1 billion plus in additional operating cash flow per year, he said.

Wall Street seems to share Roberts' bullishness.

Goldman Sachs analyst Anthony Noto just started coverage of the cable and satellite sector last week with a "favorable" view of cable stocks. In his initiation report, he said: "Comcast is our favorite idea, with 20% upside to our $51 12-month price target and accelerating revenue growth and margin expansion expected in 2007."

Noto said Comcast has had a great run, but added: "We believe that there is further upside for shares in 2007 based on our expectation of continued double-digit (operating cash flow) growth over the next few years driven by the triple bundle, strong free cash flow generation and improving returns."

Finance mechanics alone should further elevate the stock, he said. "Expected 2007 (operating cash flow) growth of 18% on a stable current-year multiple and a modest stock-repurchase program mechanically drives 20% share appreciation," he said.

In addition, Noto said that Wall Street's expectations for Comcast's 2008-11 financials are "too low and understate the growth rate of digital phone," providing for further potential stock catalysts.

Last month, Merrill Lynch analyst Jessica Reif Cohen also struck bullish tones on Comcast, strongly reiterating her "buy" rating on Comcast shares.

"Continued strong growth could lead to multiple expansion," she said, adding that financial momentum should remain strong. "We anticipate strength to continue for the foreseeable future as Comcast scales its voice business and increases its triple-play footprint."

Reif Cohen also said that her $47 price target on the stock could trend higher if the company "continues to grow at its current pace."

Last year, Comcast Class A shares rose 63.3%. After closing 2005 at $25.92, they reached $42.33 as 2006 ended. The stock Tuesday closed at $42.74, with its 52-week range at $26-$43.41.

One of the few investor concerns regarding cable stocks in general and Comcast in particular have been questions about the need for increased capital expenditures to further boost bandwidth for advanced services.

Comcast, for example, recently announced it will spend $80 million for bigger-than-expected upgrades in the Bay Area and Silicon Valley where AT&T is launching its U-Verse video service that competes with cable.

But Miller Tabak + Co. analyst David Joyce said this is only "raising a yellow flag, not a red one."

While he said that "the potential for a new round of capital expenditure upgrades, which will eat into free cash flow, is not a positive trend," he emphasized that Comcast made clear that the cost differential between its bandwidth upgrade and the originally expected smaller upgrade was "almost immaterial."

Roberts on Tuesday also shrugged off concerns about big bandwidth upgrade needs.

Even though he tends to be conservative in giving outlooks, he said he has never felt "more enthusiasm than right now" for Comcast's business. "The next five years will be even better than the last five."
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