Summary
- Comcast’s earnings results mostly beat across its segments.
- Comcast completed its previous share repurchase program and is suspending further buybacks for 2019, although it increased its dividend by 10%.
- We like developments in the core cable business.
- But we're not positive on the Sky acquisition.
- At 9x EBITDA, valuations aren't compelling enough for us to take a position.
Post-Sky acquisition, the Comcast (CMCSA) thesis has evolved from a US-centric story to a more complex one which has led investors to question management discipline. We like the company's strong cable trends and think management's attempts to shift investor focus away from Sky back to the core business is the right move. With the cable segment transitioning into a higher margin, lower capital intensity mode, we think the future is bright for Comcast.
However, with the stock trading at 9.2x EV/ EBITDA, the valuation isn't compelling in our view. We also think bulls might be neglecting the added risk from higher leverage post-acquisition (Comcast ended 2018 with leverage of 3.3x trailing EBITDA), as management will have to tighten the purse strings for a couple of years with little margin for error. Shareholders lose out too in the near-term as management will have to pause buybacks in 2019. Overall, we don't think the risk-reward makes sense at this juncture and remain on the sidelines.
