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4 Reasons Comcast Is a Buy

By James Brumley - Mar 31, 2021 at 8:00AM

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The stars are finally lining up for the underestimated media giant.

It will never be the sort of growth-stock name that Amazon or Peloton is right now. But cable giant Comcast (CMCSA -0.26%) still has something to offer safe, growth-minded investors.

In fact, Comcast has more to offer buyers now than it has at any point in the past 12 months. Here's a rundown of the top four reasons Comcast stock is a nice pickup at the moment despite recently (and temporarily) reaching all-time highs.

An end to the pandemic is in sight

So-called "recovery" trades related to the coronavirus pandemic are almost a cliche at this point, but that doesn't mean the reasoning isn't sound. There are bunches of companies that will fare better once coronavirus-related restrictions are out of the way.

Man pressing a "buy" key on a computer keyboard.

Image source: Getty Images.

One of Comcast's big burdens in this regard has been limited guest attendance at its theme parks. As the parent company to NBCUniversal, Comcast is the owner of three Universal-branded amusement parks plus a handful of fun-focused destinations. Parks aren't the company's biggest business, but they accounted for about 5% of the company's 2019 pre-pandemic revenue. Theme park revenue tumbled about 69% in 2020.

But what about movies? They're part of the mix, too, though surprisingly, not as important as theme parks are for the top line. Universal's theatrical revenue amounts to only about $2 billion per year in a normal year, which is roughly a third of Comcast's theme park revenue. This business also suffered in 2020, but the company had alternative distribution paths at its disposal, like direct-to-consumer.

Still, every little bit helps. To the extent that the coronavirus stands in the way, the fact that about a third of all U.S. adults have received at least one of two needed vaccine injections says the contagion may be quelled soon.

It's upgrading its ad-selling tech

Last year's launch of streaming service Peacock was exciting, but in retrospect, Comcast wasn't quite ready for prime time. Internet-delivered video has the potential for far better ad targeting than conventional cable television does, and advertisers expect such solutions. While the ad-selling and ad-management platform -- called One Platform -- unveiled in February of last year was a step in the right direction, it wasn't enough.

That's changing now. Comcast is beefing up its advertising-selling technologies.

One of these improvements is the creation of what the company's calling NBCU ID, short for NBCUniversal Identification. Now, individual consumers will be singularly identified and cross-marketable from one NBCUniversal platform to the next (linear cable, over-the-top, desktop, etc.), improving advertisers' overall effectiveness in reaching them.

Another sizable leap is the expansion of its ad-buying platform, FreeWheel. TV rival Fox Corp. (FOXA -0.48%) (FOX -0.32%) is now using FreeWheel to enable programmatic ad purchases for certain video-on-demand assets (namely Tubi). It's the first such partnership for the network television industry, although not likely the last. The company did more than $8 billion worth of TV advertising business in 2020, and it was an off-year.

Comcast is optimizing its media product mix

Cable television is clearly on the defensive. Conventional cable providers in the U.S. shed another 1.2 million customers during the fourth quarter, with most of those customers adding at least one new streaming service to their entertainment mix at the same time. The trend takes dead aim at Comcast's cable television operation, branded as Xfinity.

It just doesn't matter anymore.

True to the promise made by CFO Michael Cavanagh more than once now, Comcast isn't chasing (read "spending money") to attract or retain unprofitable video subscribers. Rather, the company is working to build its more profitable broadband business. Whereas the company lost nearly 250,000 paying cable customers last quarter, it added 538,000 paying high-speed internet customers.

It's also now got a sizable user base for the aforementioned Peacock that's not yet been effectively monetized. All told, 35 million people are now signed up for Peacock, which launched in July of last year. But Peacock generated only $118 million in revenue last year, which is well short of norms in the industry even after you factor in the launch date. Peacock is also set to be another beneficiary of the company's ad-selling overhaul.

There's hidden value

Finally, and perhaps most importantly, the stock's present price understates the enterprise's full value. That's the opinion of Wells Fargo analyst Steven Cahall, who recently explained, "While each Comcast business is good, we believe it would be a much better stock if they were apart."

Translation: Investors aren't fully valuing the stock because its different divisions make it difficult to evaluate.

It's a tricky idea to digest. Cahall's call is technically bearish as long as the company remains intact. But a split-up isn't on the radar. Look at the bigger picture, though. The Wells Fargo analyst is tacitly acknowledging an opportunity for management to draw out value that's already in place.

NBCU ID is one way the company will be able to illustrate the cross-marketable value of the 230 million different U.S. consumers that currently have some sort of relationship with NBCUniversal. That program, however, only scratches the surface of what's possible for the well-oiled conglomerate the company is becoming. NBCU Checkout is another new powerful tool it can offer to advertisers, allowing the organization to help sell physical goods directly from digital TV programs. Over 100 partners are using the service, but again, that only scratches the surface.

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Stocks Mentioned

Comcast Corporation Stock Quote
Comcast Corporation
CMCSA
$42.02 (-0.26%) $0.11
Fox Corporation Stock Quote
Fox Corporation
FOXA
$33.33 (-0.48%) $0.16
Fox Corporation Stock Quote
Fox Corporation
FOX
$30.79 (-0.32%) $0.10

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