Deutsche Upgrades Comcast On Expected Tax Reform, Regulatory Relief

Deutsche Bank upgraded Comcast Corporation CMCSA to Buy from Hold, saying the market is under-appreciating the potential benefits to the company from tax reforms and favorable regulatory environment under Trump regime.

“We think Comcast stands to benefit from tax reform as much or more than any company under our coverage given its high cash taxes /GAAP tax basis, lower relative levels of discrete tax assets and high levels of capital expenditures,” analyst Bryan Kraft wrote in a note.

Meanwhile, Kraft said Comcast is poised to benefit from less regulation, while a slowing X1 STB refresh cycle and an assumed 25 percent effective tax rate beginning in 2018 should boost free cash flows.

Kraft views a lesser regulation would likely mean more flexibility for firms such as Comcast to exercise broadband pricing power and raise unbundled broadband premiums. The potential move would act as a hedge for video market share loss to internet-based pay TV services such as Hulu, DIRECTV, DISH, and others.

A lighter regulatory touch also cuts the risks presented by new OTT pay TV competition, while the companies could price special access based on what the market will bear. They could also use customers’ web-browsing data for advertising purposes.

Further, Kraft assigns a low probability of a large wireless acquisition in the next two years, and notes 5G represents more opportunity than risk. The analyst pointed out that a strong dollar is positive for Comcast given its minimal forex exposure.

As such, the analyst raised the price target on Comcast shares to $88 from $68.

At last check, shares of Comcast rose 1.86 percent to $72.75.