Comcast (CMCSA) OUTPERFORM [V] S. Wang
CP: US$ 14.06 TP: US$ 18 CAP: US$ 41.8b
Improved RGU Net Adds; 3Q09 Review - Raising Estimates
• Action/Event: On Nov. 4, Comcast reported RGU results that exceeded our expectations offset partly by weaker than
expected financial results. RGU net adds of +1,067k beat our +524k est as Comcast used price discounts & price "matching"
to drive unit growth.
• Financial results were slightly weaker than our est's, with cons. rev growth of 3.0% ($8,802mm) vs. our 3.5% growth est with
the shortfall driven by lower than expected Corporate & Other. EBITDA growth of 2.7% Y/Y ($3,326mm) was below our 4%
growth est. ($3,366mm), driven by higher than anticipated prog. expense growth.
• Investment Case: Overall, we still consider cable a low to mid single digit revenue and EBITDA growth business as cable
MSO's must balance customer growth with financial performance. Thus, we do not view 3Q09's RGU growth as sustainable,
as the discounting required to drive this level of growth slows ARPU growth & likely raises churn.
• While we have raised our FY09 RGU net adds est by 25% to 2.861k, we trimmed our FY cons EBITDA est. to $13,755 from
$13,777, as we anticipate lower Corp. & Other EBITDA and lower FY content EBITDA. We have, however, raised our FY
2009 EPS estimate from $1.10 to $1.19, as tax benefits taken in 3Q09 should to result in higher FY09 net income.
• Catalysts: We continue to like cable's defensive business model. However, we believe a potential investment in NBC
Universal (which Comcast did not address on its conference call) will remain an overhang on the stock.
• Valuation: We regard valuation of the stock as inexpensive with CMCSA shares trading at an EV/2010E EBITDA multiple of
just 4.2x. As a result, we maintain our Outperform rating & $18 TP.