Comcast Shares Gain After Goldman Adds Media Giant to 'Conviction Buy' List
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Comcast Corp (CMCSA) - Get Report shares traded higher Wednesday after analysts at Goldman Sachs boosted their rating on the stock and added the biggest U.S. media company to their 'conviction buy' list.
Goldman analyst Brett Feldman boosted his rating on Comcast to "buy" from "neutral", and lifted his price target by 22% to $54 per share, citing "healthy fundamentals across its key businesses." Feldman sees improving cable division margins, a 4% annual growth rate at NBCUniversal between now and 2024 and overall annual earnings growth of 11%. He also noted that cord-cutting, a condition where traditional cable-subscribers quit their existing packages for a-la-carte offerings, will be offset by a renewed drive to attract broadband customers with fresh sports and entertainment content.
"We estimate that within the next 3-4 yrs the loss of video gross margin dollars from cord-cutting is likely to be substantially offset by higher broadband (average revenue per user) driven by an increased mix of broadband-only subscribers," Feldman wrote, adding he sees between $37 billion and $59 billion of excess liquidity by 2024.
Comcast shares were marked 2.12% higher at the start of trading following the Goldman note release to change hands at $43.98 each, a move that would extend the stock's year-to-date gain to around 29%.
Comcast reported stronger-than-expected first-quarter earnings earlier this year, but softer revenue growth clouded the media group's first update following the $39 billion takeover of Britain's Sky last year.
That concern was followed by a May agreement with Walt Disney (DIS) - Get Report that will see the House of Mouse take control of Hulu in a deal that could value the shared content-streaming platform at a minimum of $27.5 billion.
Disney will assume control of Hulu immediately, the company said, while entering into a so-called put/call agreement that would compel it to buy Comcast's 33% stake in Hulu, which is held by NBCUniversal, at a "fair market value" as early as January 2024.
That value will be "assessed by independent experts" but Disney will guarante a sale price for Comcast that values Hulu's equity at minimum of $27.5 billion, the companies said in a statement. The two companies also agreed to fund Hulu's recent purchase of AT&T's (T) - Get Report 9.5% stake, splitting it two-thirds/one-third in Comcast's favor.