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Oppenheimer Downgrades Comcast After $40B Sky Bid, Projects Increasing Competitive Pressure

September 24, 2018 10:11 am
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Just a few short months ago, Comcast Corporation (NASDAQ:CMCSA) conceded in the race for Twenty-First Century Fox (NASDAQ:FOXA) assets and redirected its focus to British media conglomerate Sky Plc. (OTC:SKYAY).

Over the weekend, Comcast submitted a $40-billion bid for Sky that the British broadcaster recommended its shareholders accept. 

The Analyst

Oppenheimer analyst Timothy Horan downgraded Comcast from Outperform to Perform.

The Thesis

The downgrade is driven largely by a relatively high new pro forma valuation and an expected increase in competitive pressure from new technology, Horan said in the Monday downgrade note. (See his track record here.) 

“CMCSA needs to invest in U.S. wireless/OTT capabilities and ultimately consolidate the U.S. cable industry to protect its franchise here," the analyst said. 

One key valuation driver surrounds 5G wireless and its competitive threat to wireline broadband, Horan said. With the convenience and cost-saving presented by over-the-top live TV, competitors like T-Mobile US Inc. (NASDAQ:TMUS) and Verizon Communications Inc. (NYSE:VZ) are beginning to rise within the 5G sector, he said. 

Other competitive factors include T-Mobile’s launch of the Layer3 TV in November, as well as Amazon.com Inc. (NASDAQ:AMZN)’s Fire TV announcement.

“[Comcast] is set to face increased competitive pressures and is now fairly valued. CMCSA can and will raise broadband prices, but this will cause further competition," the analyst said. 

Comcast shares would be more interesting at the $30 level, Horan said. 

"It has risen 5x since 2009 vs. an increase of 164 percent in the S&P 500 over the same period.”

Price Action

Comcast shares were down 8.27 percent at $34.76 at the time of publication Monday. 

Related Links:

The Sky Bidding War: What It Means For Any Potential Fox Acquisition

5 Reasons Why Comcast Is Fighting Disney For Fox

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