Deutsche Bank Reaffirms Buy on Comcast Corporation, Remains Top Pick Third Year Straight

In a report published Tuesday, Deutsche Bank analyst Doug Mitchelson reaffirmed a Buy rating on Comcast Corporation

as the company remains a Top Pick for the third year in a row. According to the report, as the opportunity in the stock is obviously no longer unrecognized, analysts still see the potential for meaningful LT outperformance. “Importantly, programming costs should grow an above-normal 10% y/y due to ABC retrans, NBCU renewals and partial yrs for FS1, Fx, FXX, Fox RSNs, Fox News and The SEC Network (ESPN),” the report noted. “Programming renewals are mostly complete; cost growth should be 6-7%/yr rest of decade, well below industry avg. ‘14 Cable margins should be stable as political offsets programming. Cable capex will be higher again in ‘14 due to ramping X1, which is smart given the importance of video subs to valuation (see Fig 1); we now est. '14 capex of $5.9b, +9% Y/Y (vs. +10% Y/Y in '13). NBCU benefits from political ad rev, stronger NBC Net viewership, the Olympics, easy Oblivion film comps ($100m of losses) and Harry Potter Orlando expansion, while facing tough Despicable Me 2 comps ($200+m of profit in '13), soft cable net ratings, and a light ‘14 tent pole slate with Fast7 pushed to ‘15. Affiliate renewals are driving NBC Net retrans, but Cable Net affiliate growth remains modest (6%) as stronger growth from USA appears to be subsidizing smaller network buildouts.” Some risks to CMCSA include the company bearing uncertainty on NBCU content popularity and potential for future dilutive M&A. CMCSA closed Friday at $53.42.