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Comcast Corp. looks like a better cable play than Charter Communications Inc., one analyst says.
KeyBanc Capital Markets analyst Brandon Nispel upgraded Comcast’s stock
CMCSA,
to overweight from sector weight late Monday, while making the reverse move on shares of Charter
CHTR,
“[O]ur preference shifts to [Comcast] for large cap exposure in Cable/Telecom given [Comcast’s] attractive total return potential (share appreciation + dividend yield + share repurchase),” Nispel wrote, adding that fundamentals for Comcast’s cable business seemed likely to be better than Charter’s.
The cable industry is going through a time of transformation. Not only are consumers rapidly pulling back on traditional video plans, but people are also moving less, leading to a smaller pool of potential broadband subscribers up for grabs. Additionally, wireless players like T-Mobile US Inc.
TMUS,
Verizon Communications Inc.
VZ,
and AT&T Inc.
T,
are encroaching on the home-internet market with fixed-wireless or fiber-to-the-home offerings.
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“Our thesis on [Comcast] does rely on much reversion in broadband subscriber growth to work,” Nispel wrote as he set a $44 price target on the stock, which was trading south of $38 Tuesday.
He thinks Comcast can maintain capital intensity in the range of 11% to 12%, whereas Charter has “high-cost” building plans ahead of it in conjunction with the Rural Digital Opportunity Fund (RDOF).
Nispel has other concerns about Charter as well, including its “higher leverage” and the potential for its capital spending to affect free-cash flow and buyback opportunities. While he thinks the company “can still produce improving broadband
subscriber trends in 2023/2024″ and improve its earnings before interest, taxes, depreciation and amortization (Ebitda) as well, he said that “many of the same factor exposures can be achieved through a combination” of Comcast, WideOpenWest Inc.
WOW,
and Cable One Inc.
CABO,
He turned bullish on WideOpenWest in his latest report, writing that he sees the potential for a resumption in high-single-digit subscriber growth after the first quarter.
WideOpenWest shares were up about 1% in Tuesday afternoon trading, while Comcast shares were down 0.4%. Charter’s stock was off 3%.
“We maintain [T-Mobile] remains best positioned and note [ AT&T] may be attractive for those seeking yield, but believe [Comcast] provides the best total return potential in large cap,” Nispel wrote.
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