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Wall Street Searches for Deal Clues In Comcast Mogul’s Words

Comcast may have lost 34,000 broadband subscribers in the fourth quarter and 66,000 for the full year 2024 as per its latest earnings report on Thursday, but Wall Street was happy to look past that thanks to the loss coming in below estimates and management’s M&A commentary.

Given its history of big acquisitions, including the likes of NBCUniversal, cable giant AT&T Broadband and European pay-TV powerhouse Sky, the Street tends to be jittery about Comcast’s possible involvement in major M&A, which costs not only money but also time to deliver financial returns and demonstrate strategic benefits. Some investors and analysts have expressed concern that the company could shell out big bucks to expand its entertainment operations by buying TV networks and other challenged businesses.

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No surprise then that amid recent M&A chatter, including talk that Comcast could look for a merger with Warner Bros. Discovery (WBD) or Paramount Global, all eyes and ears were on chairman and CEO Brian Roberts on Thursday. “While there may be speculation what we could do next, I’d like you to hear it directly from me. I love the company we have,” he emphasized though. “So the bar continues to be even higher for us to do anything.”

His Wall Street audience was delighted. “More Execution & Less M&A,” summarized Wells Fargo analyst Steven Cahall in his post-earnings report. “While ’24 growth for Comcast is somewhat modest, it’s also stable and supported by steady execution,” he emphasized. “Management also talked down M&A, removing some overhang.”

Cahall raised his stock price target by $5 to $50 and maintained his “equal weight” rating. After the earnings commentary, the analyst wrote: “We have pushed the idea of Comcast for WBD and take Roberts’s comments as downplaying any likelihood.”

Bernstein analyst Laurent Yoon also put the spotlight on the Comcast boss’ M&A commentary after the earnings update. “No surprises and one key message that mattered (a lot) — ‘the bar is even higher’,” he highlighted his takeaways in the headline of a report.

“Broadband continued to face challenges and lost subs as expected but (management) managed to grow domestic residential average revenue per user by 3.9 percent despite the intense competitive environment,” he noted.

But the standout moment of the earnings call was Roberts discussing M&A, even if he reiterated what Comcast president Michael Cavanagh has said repeatedly in recent quarters. “However, it matters when
the message is coming directly from Brian himself,” Yoon emphasized.

He raised his stock price target by $4 to $48 and maintained his “market-perform” rating.

Macquarie Capital analyst Tim Nollen similarly stuck to his “neutral” on Comcast with an unchanged $43 stock price target. “Positive takeaways include results at Peacock and (theme) parks. Broadband sub adds remain negative,” he noted. “A dividend raise and extended (stock) buyback program boosted the stock.” Nollen also highlighted that “Peacock’s revenue gain offset linear losses in the fourth quarter.”

The analyst explained why is he “neutral” on the stock this way: “Once again Comcast demonstrates its ability to execute with solid free cash flow, disciplined capital spending and shareholder returns, but
underlying cable and media industry growth is underwhelming.”

Wolfe Research analyst Peter Supino also remains mixed on Comcast, sticking to his “peer perform” rating without a stock price target. “Looking ahead, the ‘Big 6’ growth businesses(broadband, wireless, business services, parks, Peacock and studio) should exhibit solid revenue growth again in 2024 and beyond, more than offsetting legacy declines to produce 4 percent earnings before interest, taxes, depreciation and amortization growth in ’24E,” he wrote before warning: “Though risk/reward looks favorable, the near-term setup is challenged by a media capital allocation conundrum (NBC needs more scale) and fierce broadband competition.”

Meanwhile, MoffettNathanson analyst Craig Moffett is more bullish on Comcast than many peers. He has a “buy” rating with a $55 stock price target on the company. In his review of the latest company update, he highlighted “a higher dividend, a renewed share repurchase commitment, some traction at Peacock” and “the fact that broadband net adds beat expectations.”

But Moffett doesn’t expect Roberts’ M&A comments to end the Wall Street debate about possible future deals involving Comcast. “Both of their two broad business portfolios – Connectivity & Platforms and Content & Experiences – are in transition. The obvious question is … will management decide that this organic transition is enough (or fast enough)?,” he explained. “On their conference call, Brian Roberts reaffirmed his view that the company is happy with the assets they already have and that the ‘bar is very high’ for anything other than this organic path forward. That is surely not going to quiet the questions.”

Pivotal Research Group analyst Jeff Wlodarczak is also bullish but not convinced that Comcast will stay away from dealmaking. He reiterated his “buy” rating on the stock after the earnings update, while lowering his stock price target by $3 to $55 after updating his financial forecasts. The “risk” section of his report mentioned M&A risk, among others. And Wlodarczak shared his latest expectation, writing: “We put the odds of a deal for WBD in ’24 at 50/50 currently.”

Overall, Comcast shares on Thursday gained 3.4 percent to $45.27, near their 52-week high of $47.46, established in August.

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