Comcast Needs To Unlock Value, Should Consider Separating Cable Business: Analyst

Comcast Corporation CMCSA is composed of a "collection of good businesses" but management has to take action to unlock value before investors can buy the stock, according to Wells Fargo.

The Comcast Analyst: Steven Cahall initiated coverage of Comcast's stock with an Underweight rating and a $48 price target.

The Comcast Thesis: In its current form, Comcast's stock has a lot of trapped value as the cable and media businesses are moving in opposite directions, Cahall wrote in the note. The cable business is benefiting from decelerating capital intensity while the media business is stuck in a multi-year long period of accelerating investments.

Cahall said the value of the Cable business is trapped and valued below its peers to the point where Comcast shareholders are getting a dividend and buyback that amounts to less than 60% of free cash flow versus its peers at 100% of cash flow. As such, there is little logic for keeping the company together in its current form.

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"CMCSA is trying to strike a balance between what cable companies promise (capital returns) and how media companies pivot (big content investments)," the analyst wrote in the note. "We see limited rationale for keeping the two major pieces together as investors can construct their own CMCSA-like portfolios

Cahall said management should consider separating the cable business from NBC Universal and Sky through an acquisition, a spin-off to Comcast investors, or merged with potential media partners.

CMCSA Price Action: Shares of Comcast were trading lower by 0.6% Wednesday morning at $57.68.