Our latest Focus Stock is Comcast Corporation (CMCSA), which carries CFRA Research’s highest investment recommendation of 5-STARS, or Strong Buy, asserts analyst Tuna Amobi in MarketScope's The Outlook.

Comcast is a vertically integrated media and entertainment conglomerate with diversified distribution and content assets.

As the largest U.S. cable operator, the company provides a suite of Pay-TV services to residential and business customers, with a recent subscriber base (as of December 31, 2018) as follows: video, 22.0 million; high-speed Internet, 27.2 million; and voice, 11.4 million.

The company’s NBCU division includes broadcast networks (NBC and Telemundo) and several cable channels (including USA, Bravo, E!, Oxygen and MSNBC) and broadcast networks, as well as filmed entertainment and theme park assets.

In October 2018, Comcast acquired Sky, a Pan-European satellite television broadcaster, for about GBP 30.2 billion ($39.5 billion), prevailing in a bidding war against Disney (DIS). Comcast also owns a 30% stake in Hulu, a steaming video site.

The breakdown of 2019 consolidated revenues and total segment adjusted EBITDA (pro forma for the Sky acquisition) are as follows: Cable Communications (50% and 66%); NBCU (32% and 25%); and Sky (18% and 9%).

After what we saw as saw as relatively encouraging Q4 results to wrap up a very remarkable year in 2018, in late January 2019, the company affirmed its positive outlook on a potentially transformative acquisition of Sky.

The Sky integration bodes well, we think, for further business and geographic diversification, providing some complementary content offerings and meaningfully increasing the company’s international exposure.

Following the Sky consolidation in October 2018, we project consolidated revenues of about $108.96 billion in 2019, up about 15%, against comparisons to the prior-year revenues at NBC related to the Super Bowl and Winter Olympics, and to record political advertising for local television stations.

Other key drivers will likely include higher penetration of bundled residential and business services, continued healthy growth in NBCU's TV subscriptions/affiliate fees and content licensing revenues (versus relatively stagnant advertising growth).

Also, we anticipate modest revenue growth at NBCU’s theme parks division and easier comparisons for filmed entertainment, as well as content revenue and subscriptions growth at Sky. We project 5.2% revenue growth in 2020.

Based on our 12-month target price of $44, we see further upside for the shares at current levels. Our target price implies a total EV/EVITDA multiple of 9.2x our 2019 estimate, which is slightly above the median multiple of the large media peer group, and versus its five-year average of 8.5x.

We think this premium is partly justified by potential economies of scale and potential upside on the Sky integration. After a 10% dividend increase in January 2019, the stock recently offered an implied yield 2.2%. We note some potential risks to our recommendation and target price.

First, we would be wary of merger execution risk or potential dilution on the Sky acquisition. Also, we see uncertainties on potential developments on the FCC's regulations on broadband, as related to its classification (Title II) as well as a pending court challenge to a recent overturn of open Internet principles (Net Neutrality).

Next, we are wary of a continued customer attrition in the U.S. pay-TV market amid intensifying competition from cheaper online video services such as Netflix (NFLX) and others. Lastly, given the company’s international exposure, our outlook could be undermined by geopolitical risk factors (e.g. Brexit) or by related foreign currency volatility.

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