Can Industry Leader Comcast Continue To Outperform Its Peers?

Guggenheim Securities upgraded shares of Comcast Corporation CMCSA as it believes core trends at Cable Communications, content momentum at NBC Universal, a uniquely strong balance sheet and an attractive relative valuation contribute to greater share appreciation in the next 12 months than it had previously forecast.

Analysts Michael Morris and Curry Baker see incremental interest arising out of slower programming cost growth at Cable in 2018, advertising revenue momentum and a strong film slate.

Guggenheim expects the tailwinds of the X1 platform, which has helped to differentiate service at Cable Communications, to dissipate in the coming year. The firm believes Comcast would continue to take share of both video and broadband subscribers.

Additionally, Guggenheim expects lower programming cost growth and advertising growth to lead to margin expansion in 2017. The firm termed the company's nascent wireless offering, vast amount of customer data and ability to tailor advertising messages as under-appreciated assets of the company.

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On NBC Universal, Guggenheim noted that the media segment continues to outperform peers, thanks to revived and newly established film franchises, theme park expansions and subscription and advertising pricing improvements.

"We see the segment as positioned for high single digit EBITDA growth in 2018, with continued retransmission momentum sustainably bolstering the combination of structural and cyclical momentum in advertising and film," the firm added.

With the company focused on further enhancing multi-platform opportunities, the firm expects DreamWorks Animation to become a significant contributor, starting in 2019.

The firm feels competition and consolidation would likely impact Comcast shares in the coming year. Competition for broadband subscribers, according to the firm, will be intense, stunting growth.

Longer term, the firm is of the view, the industry will be constrained by the need for incremental capital to meet consumer and business broadband requirements.

Meanwhile, Guggenheim expects further consolidation in the cable industry in the coming years. If the right opportunity is identified, the firm believes Comcast will benefit from merger synergies.

As such, Guggenheim upgraded shares of Comcast from Neutral to Buy and raised its price target from $42 to $46.

"Our valuation premium reflects the company's strong competitive position in broadband, continued share gains driven by the X1 platform and strong management team," the firm clarified.