Comcast (NASDAQ:CMCSA) has found a bottom. Comcast touched $32 on a few occasions in recent weeks — its lowest level since mid-2018. Shares have rallied almost 20% from those lows. But a quick look at the chart for CMCSA stock shows that there should be still more upside ahead.
After all, Comcast was trading above $45 as recently as February. The response to the novel coronavirus will have a negative impact on some areas of the business, but it could have a beneficial effect elsewhere.
We are seeing signs of optimism as we navigate this crisis together. U.S. stocks are rallying as a result. For both Comcast stock and the market as a whole, I don’t believe this rally is close to over.
Comcast Takes a Hit
On its face, it would appear that this crisis and its lingering economic effects should be a significant negative for Comcast. Comcast’s Universal Studios theme parks are closed. Universal films The Hunt, The Invisible Man and Trolls World Tour were released online instead of in theaters.
Meanwhile, Comcast’s NBCUniversal unit is going to face the same challenges as other content providers. The likes of ViacomCBS (NASDAQ:VIAC, NASDAQ:VIACA) and Discovery (NASDAQ:DISCA) have seen their share prices hammered during the recent selloff. For instance, VIAC stock is down 65% year-to-date, making it one of the 20 worst performers in the S&P 500.
But looking closer, the net impact of the coronavirus is much less significant. The issues with the theme park business, for instance, are somewhat transitory. It likely will take some time for consumers to return in full, but they will. Meanwhile, that business only accounts for about 7% of Comcast profit, as I detailed last month.
The movie business drives an even smaller proportion. And a good chunk of its revenues come from licensing, which may get some help as consumers rent Universal movies over platforms like Fandango. (NBCUniversal is the majority owner of that platform, by the way.)
There are going to be short- to mid-term impacts to a portion of Comcast’s business. But those businesses aren’t gone for good. The theme parks aren’t going to close permanently. Television ad revenue will return. Movies still will be made.
Over and over during the crisis, I’ve tried to advise investors to take the long view. That advice applies here too.
Comcast is going to take a short-term hit to a small part of its business. That alone does not, and cannot, justify what still is a 22% decline from January highs. The company has lost over $40 billion in value during that stretch.
Cord-Cutting
There is one other potential source of worry. We may see so-called “cord-cutting” accelerate once consumers return to normalcy — or even before then.
For now, consumers stuck at home may be adding Netflix (NASDAQ:NFLX) to their cable subscriptions. After this crisis passes, they may keep Netflix, and lose the cable.
Indeed, Comcast’s rival, Charter Communications (NASDAQ:CHTR), has sold off of late as well. Unlike Comcast, Charter doesn’t own content assets or operate theme parks. It’s a cable pure-play.
And CHTR stock seems to be pricing in some level of pressure from cord-cutting. That in turn suggests similar pressure on Comcast’s video business.
Broadband Drives the Case for Comcast Stock
But I’d look at what Comcast calls its Cable Communications segment in totality. That segment drove over two-thirds of profit in 2019, and will generate an even larger share in 2020. Cable Communications is the driver of Comcast stock.
For that segment, potentially accelerated cord-cutting is a concern. But it’s not an enormous issue. Video subscribers are less profitable than broadband subscribers to begin with. That’s because Comcast has to pay affiliate fees to network operators like ViacomCBS and Discovery.
It’s broadband that is the real moneymaker in Comcast’s most important segment. And the broadband business is going to benefit from this crisis.
I don’t mean that from a short-term perspective. Even if it did, it’s not necessarily material. Again, investors need to take the long view.
And that long view highlights the fact that Comcast’s broadband business has only become more valuable. Look at the changes in behavior being accelerated by this crisis.
Consumers and businesses nationwide are using Zoom Video (NASDAQ:ZM) to communicate. I’ve continued to recommend Teladoc Health (NYSE:TDOC) as a play on telemedicine, whose adoption is going to grow exponentially in the coming months.
Streaming services are going to explode, thanks to Netflix and the new Disney+ service from Disney (NYSE:DIS).
The importance of the internet is only increasing. But, more importantly for CMCSA stock, the importance of high-speed internet is only increasing.
That in turn makes Comcast’s broadband business more valuable. And that is Comcast’s most profitable business.
So we now have a stock with a significant long-term tailwind trading at less than 12x forward earnings. Even with CMCSA stock up nearly 20% from the lows, that’s an opportunity.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.
