Comcast: Are Long-Term Expectations Too Low?

| About: Comcast Corporation (CMCSA)
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Craig Moffett, a long-standing bull on Comcast (NASDAQ:CMCSA) shares, on Tuesday raised his price target on the stock for the second time in two weeks. After boosting his target to $44 from $40 heading into the company’s third quarter earnings report, Moffett today lifted his target to $48, and said that “a case can be made for a $50 share price in a year.” (That would be close to the stock’s all-time closing high of $53.125, reached in December 1999.)

Moffett notes that the stock has gained more than 50% over the last nine months based on two factors: One, the company has “repeatedly beaten unreasonably low expectations,” and two, “valuations at the start of the rally were near all-time lows.” Moffett says that while he expected continued acceleration in growth, he concedes that “so does everyone else.” Ergo, he says, “it is reasonable to assume that the ‘expectations rally’ is nearing its conclusion.” Nonetheless, he says the stock’s attractive valuation should continue to attract incremental buyers - and he says that while near-term expectations have become more in line with reality, “longer term expectations remain too low.”

Moffett’s report also includes a rant about the lock-step rally in cable, telecom and satellite television stocks.

A year ago, the consensus in the sector was that, with the telcos on the brink of entering the video business, nobody would win. A year later, the consensus seems to be that nobody will lose. Cable, satellite and telco stocks are all up sharply. That’s still wrong, in our view. Cable had the decisive technological and marginal cost advantages versus legacy telco network and versus satellite…over the long term, we believe that the ‘cable wins’ thesis will translate into greater pricing power, higher margins and higher growth as additional opportunities made possible by cable’s superiod network move to the fore.

Moffett sees two big long-term opportunities that he says are not yet priced into the stock: business services and interactive and addressable advertising.

On the business services side, he contends that the total opportunity to provide voice and data services to the small- and medium-sized business market is about twice the size of the residential voice market. Moffett says Time Warner (NYSE:TWX) is about 12-18 months ahead of Comcast in going after that market. On advertising, he sees three seperate opportunities as yet untappedto offer advertising tailored to consumer preferences: 1) Comcast’s broadband portal; 2) VOD advertising and 3) addressable advertising in linear video streams. “Linear TV advertising if a $140 billion market, none of which is targeted on anything other than a broad demographic basis,” he writes. “But cable’s digital set top boxes enable cable operators to offer adverters the Holy Grail of marketing - complete trackability of interactive click streams (a la the Internet) but vastly more information about who is doing the clicking than could ever be offered by a Google or a Yahoo.”

Comcast shares on Tuesday rose 38 cents to $40.67.