Comcast Is an Underrated Defensive Stock, Says Morgan Stanley

Comcast is reiterated with an overweight rating at Morgan Stanley, but analysts lower the price target to $45.
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Comcast  (CMCSA) - Get Report is an underrated defensive equity, according to a bullish note from Morgan Stanley analysts, who reiterated their overweight rating on the stock but lowered their price target to $45 from $53. 

The price target represents a potential 38% upside from the stock's previous closing price on Wednesday. Comcast shares rose 3% to $33.40 in trading Thursday. 

"Comcast's cable business, anchored by broadband and representing 70%+ of [earnings before interest, taxes, depreciation and amortization], offers investors unique exposure to predictable growth through this macro shock. At current prices, that more than offsets the unique pressure at NBCU and Sky," wrote Morgan Stanley analyst Benjamin Swinburne.

The analyst said he sees the company's broadband business as a clear secular growth driver as people work from home amid the coronavirus pandemic that has brought the world economy to a halt.

"The range of outcomes for shares is narrower than the average of our coverage group, as Comcast has a more narrow range of expected FCF given its defensive cable business and its relatively modest leverage levels (at least relative to the size of its EBITDA)," Swinburne wrote. 

The firm lowered the company's EBITDA growth outlook to 5% in 2020 and 4% in 2021 from its previous views of  6% growth and 5% growth, respectively. 

In the near term, Morgan Stanley said it expects an increase in video losses and assumes a hit to wireless sales "which are impacted by sales at retail stores." 

Cable capital spending also is estimated to decline in the new economic environment.