Analyst Peter Supino of Sanford C. Bernstein & Co., said he likes Comcast, but he might like it better if the cable company spun out its NBCUniversal and Sky unit.
In a research report built around an open letter to Comcast CEO Brian Roberts, Supino said that he upgraded Comcast stock to “outperform,” its highest recommendation.
Supino said that Comcast stock is now underappreciated by the market. “For Comcast to be a great stock, not just a good stock, we believe the company must re-think the strategy and structure of its NBCU and Sky segments,” he said.
Now is the time for boldness, as opposed to incrementalism, Supino said. “The bold move we support is a spin-out of NBCU/Sky,” he said. “To sustain the status quo is a version of boiling a frog, and we believe this team is too smart, too competitive and too invested to oversee that.”
Comcast’s strategy has emphasized scale and the acquisition of NBCU and Sky give the company insights into all aspects of the industry and increasingly into global markets. Financially, the company has grown its adjusted earnings per share by double digital in 10 of the last 11 years and recently increased its dividend.
Supino argued that a spinout would give the two companies a “materially higher combined equity value.”
He also said the move would give the company more incentive to invest in programming and technology for user interface, personalization, audience data and advertising monetization and to pursue strategic acquisitions.
“We recognize that NBCU/Sky competes with technology companies with greater financial resources,” Supino said.
“However, we see two reasons why this emphasis is misleading: 1) NBCU/Sky generate plenty of cash flow to accelerate investments of all kinds 2) Comcast is not using its overwhelming cash flow to change NBCU/Sky's trajectory to a degree that these units could not afford alone,” he concluded.
