We are raising our fair value estimate, but we still view Comcast shares as currently slightly overvalued.
By Neil Macker, CFA | 01-27-17 | 12:10 AM | Email Article

 Comcast  ended 2016 with another quarter of strong results within the cable business, as its network position, central to our wide moat rating, continues to differentiate the firm from phone rivals in most markets.

Neil Macker, CFA, is an equity analyst for Morningstar.

As expected, the company outlined its plans to launch a wireless service offering in 2017 with the company acting as a mobile virtual network operator, or MVNO, on  Verizon’s network. While the service will be nationwide, Comcast will primarily market the wireless offering to its existing and potential customers within its current footprint. We are raising our fair value estimate to $65 from $60 due to the time value of money as we roll our valuation model, but we still view Comcast shares as currently slightly overvalued.

Comcast posted another quarter of television customer growth, with net additions of 80,000 in the quarter and 216,000 for 2016--the firm’s best result in 10 years. While we still expect new entrants to the television market will challenge Comcast’s ability to grow in the coming years, we believe it has a fundamentally stronger position than  AT&T , its largest rival. Comcast’s network will help it retain customers generally, in our view, and we also find its strategy around investing in the X1 platform as superior to AT&T’s effort to bundle wireless and television services.

While Comcast’s wireless launch later this year appears to be mimicking the AT&T strategy, the MVNO platform allows Comcast to provide wireless with an asset-light model versus building out its own network. Although we remain skeptical that customers will sign up to a quad-play offering without significant overall discount to the total price, we appreciate that Comcast’s version allows the firm to test the attractiveness of quad-play with a relatively low capital outlay.

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Neil Macker, CFA does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.
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