Comcast Analyst Suggests Spinoff of NBCU and Sky

Getty Images
Comcast chairman and CEO Brian Roberts

Bernstein's Peter Supino upgrades the stock to "outperform" and raises his price target to $52, the highest on Wall Street for the company, saying the stock is "demonstrably under-valued."

Bernstein analyst Peter Supino in a Wednesday report upgraded his rating on Comcast’s stock to "outperform" and raised his price target by $4 to $52, the highest target of any analyst for the company.

"Our view is that Comcast's stock is demonstrably under-valued and that the pendulum of investor confidence now under-appreciates Comcast's strategic intelligence and commitment to long-term value creation," Supino wrote. "Cable is a strong foundation for this investment thesis."

The analyst also highlighted though that investors don't give Comcast full credit for the value of NBCUniversal and Sky. "A bullish view of cable's and [theme] parks' contributions to equity value assigns a value of zero to NBCU ex-parks and Sky," he argued, adding that "several strategic investments appear poised to fuel future growth." He see "a path to more than $4 of adjusted earnings per share and a $60-plus stock in three years.

"However, for Comcast to be a great stock, not just a good stock, we believe the company must re-think the strategy and structure of its NBCU and Sky segments," Supino also said. "Comcast's current strategy in media (NBCU and Sky) is one of incrementalism, and that now is a time for boldness. The bold move we support is a spin-out of NBCU/Sky."

Supino suggested Comcast consider a spin-out of NBCU and Sky despite acknowledging that "we recognize that NBCU/Sky competes with technology companies with greater financial resources." He mentioned cable pure-play Charter as a stock that has been outperforming Comcast.

Supino argued that spinning out NBCU and Sky together could "create a stand-alone entertainment leader that is optimized to boldly accelerate investment in programming, technology, and strategic M&A while freeing cable to invest in capacity, products, subscribers, share repurchases and dividends."

Comcast management, led by chairman and CEO Brian Roberts, has long said that scale is key in today's media landscape and owning distribution, content and technology businesses gives it insight into the various parts of the sector that allows it to spot trends and go after innovation opportunities. It has also looked to turbo-charge areas of growth, such as accelerating Sky's push into original content with increased investment, and reacted to business and consumer changes, such as testing premium VOD film releases amid the novel coronavirus pandemic. 

The company has also focused on leveraging assets and expertise across its business units, such as when it used Sky executives and technology to help with the launch of streaming service Peacock. And it has said that Sky makes Comcast more global with nearly 56 million customer relationships in, among others, the U.S., U.K, Germany and Italy, four of the top 10 markets worldwide that account for about 15 percent of the world’s broadband and video subscribers and about 50 percent of the world's video and broadband revenue.

Roberts and his team have also highlighted that Comcast has grown adjusted earnings per share in double-digit percentage ranges in 10 of the last 11 years.

On the first-quarter earnings conference call, he credited his father with instilling in him and Comcast a commitment to scale and financial strength: "Ralph's views are deep in my DNA and throughout all of Comcast, and that means having a very healthy balance sheet, a strong portfolio of complementary best-in-class assets ... and a belief that scale really matters – particularly in difficult times," he said. "Pulling all of this together requires an entrepreneurial, global leadership team able to pivot at a moment's notice."