Comcast mostly drew a thumbs-up from Wall Street with its fourth-quarter earnings report Thursday that met or exceeded forecasts in key areas. But analysts remain cautious on the outlook for NBCUniversal amid cord-cutting and streaming investments that have affected many media and entertainment stocks.
“We’re Warming on Cable, Still Cold on NBCU,” Wells Fargo analyst Steven Cahall chose as the title for his Friday report, for example. In it, he maintained his “equal weight” rating on the stock, but boosted his price target by $4 to $42. “Cable trends are de-risked as Comcast focuses on broadband average revenue per user to drive earnings growth and margin expansion,” he explained his move. “NBCU is more troubled, in our view, and contributes to our free cash flow [estimate that is] 8 percent below Street in ’23.”
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While Jeff Shell, CEO of Comcast’s entertainment arm NBCUniversal, had on Thursday’s earnings conference call touted his optimism on the unit’s growth trajectory, Cahall warned: “We remain confident in flat/up earnings before interest, taxes, depreciation and amortization (EBITDA) for NBCU’s studios and parks segments. We’re more skeptical of media trends. Advertising sounds like it has stabilized, but our channel checks suggest it is not improving. We think linear media revenue/EBITDA was -3 percent/-9 percent in ’22 (excluding Peacock) despite political and World Cup, and these trends will persist. We don’t doubt that Peacock’s $3 billion ’23 losses will be the peak, but media earnings power may never return to ’21’s $4.6 billion.”
Macquarie’s Tim Nollen, who has an “underperform” rating with a $33 price target on Comcast shares, also noted in the title of his post-earnings report Friday: “Near-term backdrop remains challenging.” He explained: “Comcast reported a slight beat on revenue and EBITDA, but questions remain over broadband subs and media declines in ‘23. Peacock’s 20 million subs are impressive, but sub growth may stall lacking event drivers in the first half [of the year], and losses will deepen in ’23.” His conclusion: “We remain near-term cautious.”
Wolfe Research analyst Peter Supino, in his report “Capital Carousel Begins and Ends at NBCU,” maintained his “underperform” rating on Comcast’s stock with a $35 price target.
“While financials were solid and cable key performance indicators were modestly better than feared (with a notable acceleration in wireless), advertising and foreign exchange are dragging down NBCU and Sky results, and the debate about the future of video isn’t going away anytime soon,” he wrote in his earnings takeaways. “Peacock subscriber adds were robust in the second half of ’22, but Peacock is now expected to lose $3 billion in ’23 (up from $2.5 billion in ’22) with relatively low revenue and no visibility on profitability.” As a result, he reduced his 2023 EBITDA estimate by 4 percent, “primarily on lower NBCU estimates (Peacock and macro), and Sky to a lesser degree, partially offset by better cable trends.”
Supino also looked at advertising, noting: “Although we cut our NBCU estimates substantially, due to linear pressures and Peacock losses, multiple sources suggest that the advertising market has stabilized at a low level since November. … Against easing comparisons in the fourth quarter ’23, we model a gentle advertising recovery into 2024.”
And how about NBCU’s streaming service? “As Peacock rises in importance, we are concerned about marginal return on invested capital,” the Wolfe expert highlighted. “Peacock has a low revenue base ($2 billion in 2022), heavy competition, and a lot of NBCUniversal content committed elsewhere. In comparison, Netflix didn’t achieve 10 percent EBITDA margins until reaching $12 billion in revenue in 2017 when direct competition was much narrower.” And Supino noted: “Elsewhere on the NBCU carousel, at parks we enthusiastically model double digit return on invested capital on expansion investments which will require years to realize.”
Meanwhile, Pivotal Research Group’s Jeffrey Wlodarczak maintained his “buy” rating on Comcast and raised his price target by $5 to $47. “Coming out of the 4Q result we made minor changes to cable and more material changes to NBC to better reflect recent linear TV issues and to better forecast still quite material Peacock losses,” he wrote. But he ended up “actually increasing our target multiple for Comcast’s NBC division to 7.5 times ’23 EBITDA (versus 7.0 times), reflecting the strong, and frankly puzzling, recent move in media comps, including Disney to 15.3 times, Lionsgate to 15 times, Paramount to 11 times, Warner Bros. Discovery to 7.5 percent and Fox to nearly 7.0 times.” He noted that he includes a 10 percent conglomerate discount in his valuation.
Comcast’s stock was down about 1 percent in early Friday trading.
