When it comes to Comcast Corporation (NASDAQ:CMCSA), investors have been mostly thinking about the negatives. In fact, it seems that there is really no hope! Since late January, Comcast stock has plunged from $42.80 to $32 – resulting in the loss of over $42 billion in market value.
Of course, the big concern is the relentless trend of cord cutting; that is, consumers want more affordable packages. The result is that streaming operators like Netflix, Inc. (NASDAQ:NFLX) have been taking share away from traditional cable operators. Interestingly enough, the market cap on Comcast stock is only $4 billion higher than NFLX’s.
I think the anxiety about Comcast stock have been way overblown. For the most part, the shares represent a compelling value.
So let’s take a look at three key reasons:
Bullish Factor #1: Diverse Platform
The cable business for Comcast may be under pressure. But the segment still throws off substantial amounts of cash flows. During the latest quarter, free cash flows came to $3.1 billion.
This has meant that Comcast has been able to invest in a variety of businesses. There is the broadband segment, which has 26.2 million customers. This is also a nice sources of cash flows. But more importantly, it allows Comcast to capitalize on the streaming market.
To this end, the company has created the X1 platform, which aggregates a broad array of content from providers like NFLX, Pandora Media Inc (NYSE:P) and Alphabet Inc’s (NASDAQ:GOOGL) YouTube.
Next, CMCSA has standout entertainment assets. Note that NBC continues to thrive and MSNBC has been growing at a robust pace. Then there is the film studio as well as the theme parks. All of these businesses sport juicy margins.
Bullish Factor #2 : Dealmaking
Over the years, Comcast CEO Brian Roberts has been strategic and disciplined with his M&A. A prime example of this is the success of NBCUniversal.
Now it’s true that Roberts’ latest attempted deal to purchase Sky Plc (OTCMKTS:SKYAY) for $31 billion has garnered a lot of criticism. Yet I think there is quite a bit of merit to the deal.
Comcast will gain access to key international markets, such as the UK, Germany and Italy. This will help to diversify the revenue base but also provide more access to its own programming.
The deal for SKY will also greatly increase the membership base. It is currently at 23 million.
And finally, CMCSA will gain access to new content offerings as well as a new streaming service. Note that this year there will be 50 Sky-owned originals.
However, ultimately the pursuit of Sky may lead to the purchase of Twenty-First Century Fox Inc (NASDAQ:FOXA), which would significantly add to Comcast’s own content assets. Of course, FOXA is trying to purchase SKY and is also in the early stages of being sold to Walt Disney Co (NYSE:DIS).
Bullish Factor #3: Financials and Valuation
While cord cutting is a legitimate threat, I think the company is taking the right steps to deal with it. Again, the company should be able to benefit from the trend from its massive broadband platform.
Besides, it seems that much of the bad news is already baked into Comcast stock. Consider that the forward price-to-earnings multiple is only 12X. What’s more, sell-side analysts also indicate that the shares are fairly cheap. Based on the average price target, the potential upside is a hefty 40%.
Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
