Media giant, communications services provider and theme park operator Comcast (CMCSA, CMCSK) is scheduled to report results of its fourth fiscal quarter before the market open on January 27, with a conference call scheduled for 8:30 am ET. What to watch:
1. BROADBAND ADDITIONS GUIDANCE: Speaking at the UBS Global TMT Conference back in December, Dave Watson, the President and CEO of Comcast Cable, said that, "financially where we are for the fourth quarter, we now expect that for EBITDA, we're going to be in the 7% to 8% range for the fourth quarter."
The executive added that, "When you look at free cash flow, we expect free cash flow to be in the low double digits. And so, the formula is working. We continue to have really consistent, solid performance. And when you go just to step down in some of the drivers that get to that EBITDA growth, you look at business services, kind of right out of the gate, that we're at a $9 billion annual run rate of revenue. And for the fourth quarter, business services is going to be in the low double digits. […] Wireless, another key driver that we had a solid Q3, [285,000]. We will beat that in the fourth quarter. So we'll set a record for wireless lines that we'll add. Advertising, solid, better than we thought, including the political comparisons, so really solid there... So, you go then to broadband. In broadband, that we're going to have wrap up the fourth quarter and deliver with the fourth quarter a really solid year. We're going to be around 1.3 million net broadband additions for the year... It was a different second half than the first half for sure, but still a solid overall year. And the fundamentals of where we're at, penetration just above 50%, very, very good churn rates. And so, the key for us is to be in position when things begin to normalize on the connect side because it really is a connect-related issue. When those things do occur, then we're going to be in a position to compete and we're prepared to do that. But overall, when you look at the entire year financially, the growth drivers, including broadband, we're quite pleased with how the year is shaping up, in good position to continue to go at it next year."
2. NEGATIVITY 'TOO PUNITIVE': On Monday, RBC Capital analyst Kutgun Maral upgraded Comcast to Outperform from Sector Perform with an unchanged $60 price target ahead of quarterly results. The analyst contended that the competitive threats to cable operators across broadband with telco fiber and fixed wireless reflected by the Street's negativity has become "too punitive." While he acknowledged telco fiber and fixed wireless will pressure the company’s fundamentals, his analysis suggests concerns over the impacts to subscriber growth have been overblown. Furthermore, the analyst is “encouraged” by the company’s rollout strategy and partnership approach as it expands into additional territories. Maral added that the sell-off in Comcast shares since August is presenting an "attractive entry-point,” with shares down 19%.
3. TOP PICK: Earlier this month, Deutsche Bank analyst Bryan Kraft named Comcast as a top pick for 2022 in Media, Communications, & Video Games and his favorite cable stock. The analyst, who has a Buy rating and $62 price target on Comcast shares, remains cautious on the broadband outlook given increasing competition, but believes this is counterbalanced by the stock's "already discounted valuation," diversification from NBCU and Sky, reopening tailwinds in the theme parks business, and a strong free cash flow growth outlook. He also sees optionality from Comcast's connected TV platform strategy, the future sale of its Hulu stake to Disney (DIS), and traction with its international streaming strategy.
Meanwhile, Goldman Sachs analyst Brett Feldman highlighted three reasons why Comcast remains his top pick in cable, namely his belief it will sustain strong cable EBITDA growth despite a slowdown in broadband net adds, his expectation that Comcast can repurchase almost 40% of its market cap by 2026, and valuation that looks "very attractive" following a 19% decline in share price from an all-time-high last September. Feldman has a Buy rating and $62 price target on Comcast shares.