Cramer Sees No Catalyst for Comcast (CMCSA)

March 30, 2009 Ockham Research

“I am recommending no cable companies. I was hoping that Apollo would not get Charter. And Comcast the would get their teeth into it. I don’t like this titanic battle between Fios and Comcast. I just think that Comcast is inexpensive but I can’t think of a catalyst to buy it. So, in other words I say, I got better fish to fry. Better cable companies too. Wow that’s mean. No, I don’t mean it.” Mad Money 3/30/2009

Cramer is down on Comcast (CMCSA) for various reasons, not the least of which being competition with Verizon’s (VZ) Fios service. The Fios television service is growing rapidly as is the availability. However, Cramer neglects to mention the other competition for viewers right now, including free alternatives on the web via providers such as Hulu. Recent studies suggest that, at least for right now, the web television penetration is not hurting cable companies but that situation could change as computing power continues to grow and availability of broadband expands as well. The online television world is developing rapidly and there are still quite a few unanswered questions, including how will it make enough money? Clearly, what ever form online television takes there is a trend towards the internet and Comcast is hoping on board. They are being proactive with their OnDemand Online service, interesting NYT blog about this here.

We have to disagree with Cramer about Comcast though because while it may not have a “catalyst” it is just too cheap to ignore. We have placed the Greatly Undervalued valuation on Comcast because it is selling well below historical norms. For instance, Comcast has normally traded in a historical range of price to sales between 2.1x and 3.5x, but the current metric is well below that range at 1.2x. Similarly, the price to cash flow has normally ranged between 7.8x and 13.4x, while it is currently trading at just 4.7x. We believe that the value in Comcast, whose fundamentals have remained intact as the stock has fallen, is catalyst enough and once the market begins to bring Comcast to more historically normal valuations it will trade in the low $20s.

Cramer Sees No Catalyst for Comcast

About Ockham Research 645 Articles

Ockham Research is an independent equity research provider based in Atlanta, Georgia. Security analysis at Ockham Research is based upon the principle known as Ockham's Razor, named for the 14th- century Franciscan friar, William of Ockham. The principle states that a useful theory should utilize as few elements as possible, because efficiency is valuable. In this spirit, our goal is to make the investing environment as simple and understandable as possible, yet no simpler than is necessary.

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