For Comcast, he set a price target of $19 the stock closed yesterday at $15.21. For TIme Warner Cable, which closed yesterday at $35.79, his target is $45.
“Relative to telecom, we favor the cable providers given relatively high growth of key financial and operational metrics as well as less exposure to the maturing an d increasingly competitive wireless industry,” he writes in a research note. McCormack adds that “while both cable and telecom face secular pressures for their respective core products, cable subscriber metrics have been more resilient that those for telecom competitors.” He contends that the perceived utility of video relative to voice “should allow cable to take a larger share of triple-play subscribers over time.”
McCormack also asserts that both CMCSA and TWC should grow free cash flow, aided by low single digit EBITDA growth and diminishing capital intensity. He contends that cash generation should cover current new projects, including migration towards all digital programming and deploying DOCSIS 3.0 for higher bandwidth, while still allowing opportunities to return cash to holders.
Not least, McCormack notes that both CMCSA and TWC trade at a discount to large-cap telecoms on both an EV/EBITDA and price/free cash flow basis, despite expectations for higher growth in both EBITDA and free cash flow.
In Wednesday’s trading:
- Comcast is off 13 cents, or 0.9%, to $15.08.
- Time Warner Cable is off 9 cents, or 0.3%, to $35.70.