Wells Fargo analysts cabled a positive view of Comcast (CMCSA - Get Report) to investors, resuming coverage of the cable-system operator and internet-service and entertainment provider with an outperform rating and $50 price target.
Comcast shares on Tuesday were trading up 1.1% at $43.84. The $50 target indicates 15% upside from Monday's closing price.
While Comcast primarily provides video and broadband service, its revenue base is more diversified than that of peers because it owns content in the U.S. and abroad, a team led by a Wells Fargo senior analyst, Jennifer Fritzsche, said in a research report.
By investing aggressively in its network and focusing on customers, the company has insulated itself from near- and medium-term risks, she said.
She called Comcast shares relatively cheap, even after they'd risen 27% year to date vs. 15% for the S&P 500.
Comcast suspended its share buybacks this year in favor of putting free cash flow toward reducing debt, the analyst said. Once it reaches leverage of 2 to 2.25 times -- which Fritzsche expects by year-end 2020 - it should resume buying back shares, she wrote.
The competitive risks, Fritzsche said, include the telecom companies like Verizon (VZ - Get Report) investing in fifth-generation networks and competing with the cable companies for delivery of content to consumers.
Comcast must smoothly integrate Sky, for which some observers were concerned that Comcast overpaid, the analyst said.
Video customers are shifting away from traditional TV packages and toward streaming, a trend that could sharpen if the economy turns to recession, she wrote. That could be offset, however, if Comcast adds more wider-margin broadband customers.
And the big risk that is beyond Comcast's control is how the politics in Washington will go after the November 2020 election.
The Donald Trump administration has been "kind" to the cable and telecom industry, "removing significant layers of regulations," Fritzsche wrote. Cable "is very light regulated at the federal level," she said.
But if a Democratic administration takes over in January 2021, issues of internet neutrality, privacy and competition could come to the fore, she said.
Comcast is a holding in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells CMCSA?
Save 57% With Our Labor Day Sale. Join Jim Cramer's Action Alerts PLUS investment club to become a smarter investor! Click here to sign up!