Comcast (NASDAQ:CMCSA) is trying to become a mobile phone operator. But will that move the needle for Comcast stock?
The cable company spent $458 million at a recent FCC spectrum auction. It has begun advertising 5G as part of its Xfinity Wireless service, launched using Verizon’s (NYSE:VZ) network and bolstered by customer Wi-Fi. It hopes an evolving standard called OpenRAN will help it build-out new services.
Meanwhile, Comcast is still a wired cable operator, a service 1.55 million customers abandoned just in the second quarter of 2020. Comcast still owns NBC Universal and the related amusement parks, the latter which have been hammered by the pandemic.
If you believe all this can be managed, however, Comcast is a bargain. The stock trades near $46, with a price-earnings ratio of 18, with a 23-cent per share dividend yielding 2%.
Should You Buy Comcast Stock?
Comcast is a leader in the “last mile” of communications. Its wired cable provides more bandwidth than the old phone networks. Cable profits drove Comcast’s move into entertainment during the last decade. Wired broadband is now expected to fund its move into wireless.
Comcast is in a similar position as AT&T (NYSE:T), only with fewer wireless assets. Both companies now have about the same market cap. It’s a tiny small fraction of cloud czars like Apple (NASDAQ:AAPL), Alphabet (NASDAQ:GOOG,NASDAQ:GOOGL) and Amazon (NASDAQ:AMZN), with which they compete for eyeballs.
Still, of 13 analysts following Comcast, nine are now saying buy it, despite a one-year price target just 5% ahead of the current price.
Rosenblatt analyst Bernie McTernan is typical. He has Comcast rated as a buy with a price target of $50, believing it can take share in broadband and squeeze more profits from cable.
The 5G Race
Comcast’s challenge is to fend off 5G long enough to become a player there.
While wireless phone companies like T-Mobile (NASDAQ:TMUS) insist they can compete with cable broadband right now, that’s still years away. For now Comcast CEO Brian Roberts insists 5G isn’t cheaper, faster or better than wired Internet, even while Comcast invests heavily in it.
Comcast’s cable business is slowly fading and being squeezed for profits. Its wired broadband business is growing. But Comcast has always wanted to sell more than bits so it’s pushing its new streaming service, Peacock. Wireless revenues are growing fast but from a small base. Then there’s SkyTV, the European direct broadcast service it got from Fox (NASDAQ:FOX).
Comcast’s capital budget shows it investing in a different future than it’s selling consumers. Comcast cut capital spending about 9% during the second quarter, with cable and Sky both taking hits. The biggest reduction, however, was at NBC Universal, the entertainment unit bought a decade ago. There, capital spending dropped 20%.
While publicly claiming 5G is in the distant future, then, Comcast is investing heavily in it, taking that money away from its older units.
The Bottom Line
Comcast wants to do everything, but it may soon be forced into hard choices.
Comcast dominates in last-mile Internet broadband, but those wires are carrying a dying cable TV service. It’s trying to squeeze profits from cable and satellite to gain a position in wireless, even while it dismisses the short-term future of that service. In June it carried $105 billion in long-term debt against just $13 billion in cash.
Comcast is a dominant last-mile company, but investors don’t like last-mile companies right now. They prefer companies at the center of the Internet to those at the edge. If you buy Comcast shares today, you’re betting either that this fashion will change, or perhaps one of the cloud czars may find it an irresistible prize.
On the date of publication, Dana Blankenhorn held long positions in AMZN and AAPL.
Dana Blankenhorn has been a financial and technology journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn.