As The Street Gets Skittish, Comcast Gets Cheap

| About: Comcast Corporation (CMCSA)

The market is getting worried about Comcast (NASDAQ:CMCSA). For this, you can at least in part blame Comcast COO Steve Burke, who spoke earlier this week at the Goldman Sachs Communicopia conference in New York. As noted by Light Reading, Burke conceded that the company is losing some video customers to Verizon (NYSE:VZ).

There have been a flurry of research notes on the company over the last several days, which can be divided into two groups: those that are sounding a cautious note on the company’s third quarter results, and those that think the recent slide in the shares - the stock is down 16% since June 30 - is unjustified. On the one hand you have concerns about loss of basic cable subscribers, and some worries about a more aggressive challenge from the Bells on broadband; on the other, you have a stock trading at a near historic low valuation. Here’s a quick rundown.

  • F. Drake Johnstone, an analyst with Davenport & Co., Wednesday cut his rating on the stock to Neutral from Buy, citing “concern that Comcast will lose a greater than anticipated number of video customers to AT&T (NYSE:T) and Verizon.” He also contends that the the two phone companies “will gain share against Comcast in the high-speed data market as each company promotes data service to their wireless customers.”
  • Hamilton Faber, an analyst with Atlantic Equities, also issued a cautious note on the company Wednesday. He noted that Burke on Wednesday gave “a more balanced presentation than we are used to from Comcast and seems to be a change of tone.” Faber notes that Burke admitted for the first time that they are losing some customers to the Bells; he says Burke also said the satellite companies are competing more aggressively.
  • On the other hand, Merrill Lynch’s Jessica Reif Cohen Wednesday asserted that the worsening sentiment on the stock is overdone. She notes that at 5.9x 2008 estimated cable EBITDA, or 6.8x for the entire company, the shares are trading at historic trough multiples, and that “brief visits to these valuations have provided excellent buying opportunities in the past.” And for those of you worrying about the economy, she notes that “cable was one of the strongest defensive sectors in the 1990-1991 recession.” She maintains a Buy rating on the stock.
  • Bank of America’s Robert Dezego also made a case for the stock Wednesday, asserting that investors are “overly focused on what ifs and competition.” He says that “the market is focusing on negative scenarios and overlooking a solid growth story.” Overlooked in the noise, he says, is continued strong growth for its voice business; he contends that “the power of the bundle will continue to grow.” Dezego maintains his Buy rating.
  • In a note Thursday morning, Wachovia’s Jeff Wlodadczak said he is trimming his estimate on basic video subscribers for the third quarter, citing both the success Verizon and AT&T are having in video and a more aggressive telco push of satellite TV services. He trimmed his third quarter EPS estimate by a penny to 18 cents; he cut 2007 to 74 cents from 75 cents, and 2008 to 99 cents from $1.01. Wlodadczak maintains his Outperform rating; but he writes that “Comcast is cheap, buy may be built to stay that way.

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