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Oppenheimer Upgrades Undervalued Comcast Stock

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On Thursday, Oppenheimer analyst Timothy Horan upgraded Comcast (CMCSA) stock to “outperform” from “perform.” Horan set the stock price target at $54 per share. The increased target price represents 16.4% upside potential from its closing price of $46.41 on September 5.

CNBC reported that Horan wrote in a recent note, “We think cable can become a 50%-plus EBITDA margin business on lower CAPX, while still growing broadband share and pricing with superior service. CMCSA has 1 gig availability in nearly 100% of its network, and we expect CMCSA to continue to increase ARPUs 4% per year. Negatively, we expect carriers to roll out 5G aggressively, which adds competition but not until 2021 or later.”

Among the 34 analysts covering Comcast, 29 recommended a “buy,” while five recommended a “hold.” None of the analysts recommended a “sell.” Analysts’ mean target price for Comcast is $49.42, which implies a potential upside of 6.5% based on its last closing price.

Is Comcast stock undervalued?

Analysts expect Comcast’s sales to grow 16.1% to $109.7 billion in 2019, 5.3% to $115.6 billion in 2020, and 2.2% to $118.1 billion in 2021. Plus, CMCSA’s bottom line should grow at a robust pace.

Analysts expect the company’s earnings to grow 20.4% in 2019, 11.1% in 2020, and 7.0% in 2021. Its adjusted earnings per share are expected to rise at a compound annual growth rate of 10.3% over the next five years.

Comcast has a forward PE ratio of 15.1x for 2019. For 2020, this ratio is 13.62x. In our view, the stock looks undervalued, considering its expected earnings growth in 2019.

Financial performance

Comcast reported its second-quarter earnings results on July 25. The media giant generated revenue of $26.86 billion in the quarter, a 23.6% rise from the corresponding quarter in 2018. It missed Wall Street’s consensus revenue estimate of $27.06 billion. Year-to-date, the company generated $53.72 billion in revenue, an 20.6% rise from the corresponding period in 2018.

In the second quarter, Comcast’s adjusted EPS rose 20.0% YoY (year-over-year) to $0.78, beating analysts’ estimate of $0.75. The stock has exceeded analysts’ adjusted EPS estimates for 14 consecutive quarters.

Comcast’s cash flows

In the second quarter, Comcast reported adjusted free cash flow (or FCF) of $4.2 billion compared to $4.3 billion in the second quarter of 2018. In the last six quarters, the company has maintained a minimum FCF balance of $2.0 billion in each quarter. Its operating cash flow was $7.0 billion in the second quarter.

Comcast has strong FCF and notes that it is committed to rewarding its investors with cash dividends. In the second quarter, the company paid $954 million in dividends. At the end of September 5, Comcast’s dividend yield stood at 1.81%.

Customer metrics

Comcast’s primary focus is on its high-speed Internet business, where it is gaining traction amid the decline the pay-TV business. The company gained 209,000 broadband customers in the second quarter compared to the 260,000 customers it gained in the corresponding period last year.

The company exited the latest quarter with 27.8 million broadband customers. Its broadband revenue increased by 9.4% YoY to $4.7 billion in the second quarter.

The company lost 224,000 video customers in the second quarter compared to the 140,000 customers it lost in the corresponding period last year. The company exited the latest quarter with 21.6 million video customers. Its video revenue decreased 0.6% YoY to $5.6 billion in the second quarter.

Comcast stock: Technical levels

Based on its closing price on September 5, Comcast stock was trading 6.4% above its 20-day moving average of $43.63. It traded 6.6% above its 50-day moving average of $43.54 and 7.9% above its 100-day moving average of $43.02. With a 14-day RSI (relative strength index) score of 67, Comcast stock is approaching the overbought zone.

On September 5, Comcast stock closed near its Bollinger Band upper-range level of $45.65. This value suggests that the stock has been overbought.

Comcast stock returns

Comcast rose 2.0% on September 5 and closed at $46.41. The stock’s five-day, one-month, and year-to-date price movements were 6.0%, 11.5%, and 36.3%, respectively.

Notably, the stock is trading 0.5% lower than its 52-week high of $46.62. The company is trading 42.3% higher than its 52-week low of $32.61. Comcast stock has also risen 27.9% in the trailing 12 months. On September 5, the company’s market capitalization was $210.9 billion.

To learn more about what’s driving Comcast stock, check out Comcast Shares Pop on Goldman’s Optimism.

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