Comcast especially pulled a thumbs up from Wall Street with its fourth quarter earnings report on Thursday that met or exceeded forecasts in key areas. But analysts remain cautious about the outlook for NBCUniversal amid investments in cable cutting and streaming that have hit many media and entertainment stocks.
“We’re Warming on Cable, Still Cold on NBCU,” for example, chose Wells Fargo analyst Steven Cahall as the title for Friday’s report. In it, he maintained his “equal weight” rating on the stock, but raised its price target by $4 to $42. “Cable trends are taking no chances as Comcast targets average broadband revenue per user to drive earnings growth and margin expansion,” he explained. “NBCU, in our view, has more issues and contributes to our free cash flow (estimated) 8 percent below Street in ’23.”
While Jeff Shell, CEO of NBCUniversal, Comcast’s entertainment division, had a earnings conference call on Thursday touted his optimism about the unit’s growth trajectory,” cautioned Cahall: “We remain confident in flat earnings before interest, taxes, depreciation and amortization (EBITDA) for NBCU’s studios and parks segments. We are more skeptical of media trends. Advertising sounds like it’s stabilized, but our channel checks suggest it’s not improving. We believe linear media revenue/EBITDA was -3 percent/-9 percent in ’22 (excluding Peacock) despite politics and World Cup, and these trends will continue. We have no doubt that Peacock’s $3 billion losses will peak in ’23, but media revenue assets may never return to the $4.6 billion of ’21.”
Macquarie’s Tim Nollen, who has an “underperform” rating with a $33 price target for Comcast stock, also noted in the title of his post-earnings report Friday, “The near-term background remains challenging.” He explained, “Comcast reported a slight increase in revenue and EBITDA, but questions remain about broadband subscriptions and media declines in ’23. Peacock’s 20 million subscribers are impressive, but sub-growth may stall in the first half (of the year) due to a lack of event drivers, and losses will build in ’23. His conclusion: “We remain cautious in the short term.”
Wolfe Research analyst Peter Supino, in his report “Capital Carousel Begins and Ends at NBCU,” maintained his “underperform” rating for Comcast stock with a $35 price target.
“While financials were solid and cable key performance indicators were modestly better than feared (with notable acceleration in wireless), advertising and foreign exchange are dragging down NBCU and Sky results, and the debate over the future of video won’t go away any time soon,” he wrote in his earnings takeaways. “Peacock subscribers were robust in the second half of ’22, but Peacock is now expected to lose $3 billion in ’23 (up from $2.5 billion in ’22) with relatively low revenues and no prospect of profitability.” As a result, he cut his 2023 EBITDA estimate by 4 percent, “primarily based on lower NBCU estimates (Peacock and Macro) and Sky to a lesser extent, partially offset by better cable trends.”
Supino also looked at advertising and noted, “While we have significantly lowered our NBCU estimates due to linear pressure and Peacock losses, multiple sources suggest that the advertising market has stabilized at a low level since November. … Against the easing of the equations in the fourth quarter of 23, we are modeling a tentative recovery in advertising in 2024.”
And what about NBCU’s streaming service? “As Peacock becomes increasingly important, we are concerned about the marginal return on invested capital,” the Wolfe expert stressed. “Peacock has a low revenue base ($2 billion in 2022), fierce competition, and a lot of NBCUniversal content captured elsewhere. By comparison, Netflix only managed a 10 percent EBITDA margin when it hit $12 billion in revenue in 2017, when direct competition was much smaller. And Supino noted, “Elsewhere on the NBCU carousel, we are enthusiastically modeling double-digit returns on invested capital in parks on expansion investments that take years to realize.”
Meanwhile, Pivotal Research Group’s Jeffrey Wlodarczak maintained his buy rating on Comcast and raised his price target by $5 to $47. “As a result of the 4Q result, we made minor changes to cable and more material changes to NBC to better reflect recent linear TV issues and to better predict still quite material Peacock losses,” he wrote. But in the end, he actually “raised our target multiple for Comcast’s NBC division to 7.5 times ’23 EBITDA (vs. 7.0 times), reflecting the strong, and frankly mystifying, recent movement in media compositions, including Disney up to 15.3 times, Lionsgate up to 15 times, Paramount up to 11 times, Warner Bros. Discovery to 7.5 percent and Fox to nearly 7.0 times.” He notes that he incorporates a 10 percent conglomerate discount into his valuation.
Shares of Comcast fell about 1 percent during Friday trading.