NBC seen adding value to Comcast


When Comcast acquired GE’s majority stake in NBCUniversal it was no secret that the buyer was mainly after the cable network assets and very little value in the deal was ascribed to the NBC Television Network. But that means there’s not much downside to NBC. According to Wells Fargo Securities analyst Marci Ryvicker, Comcast could have quite a bit of upside with NBC.

“Despite the fact that NBCU is a relatively small portion of CMCSA, comprising just about 20% of 2011E OCF (per our ests), this segment has been a significant investor focus since Q1 earnings. It is our sense that the investment community implicitly understands there is upside potential to numbers given that NBC was run by a multinational conglomerate for 26 years and is now under the control of a large media organization. Yet the stock does not act like it (-6% since May 4 earnings report, vs. the S&P 500, -4%)–we think because such potential upside has been difficult to quantify and time,” Ryvicker said in a report to clients.

The analyst laid out how NBC – the network and its O&O stations – presents the greatest potential upside for Comcast’s NBCUniversal segment. She figures the broadcast operation could produce an incremental 20 cents per year in earnings per share and add roughly $4.00 per share in equity value for Comcast shareholders.

“An increase in ratings could translate into an incremental $0.04 of EPS and $0.83 of equity value/share. It is no secret that NBC has been a ‘problem child’ when it comes to ratings (A18-49) for the past several years. NBCU management is focused on turning this around, and we see plenty of upside potential from NBC moving from #4 to #3 among Adults 18-49–specifically $543M in revenue, $163M in EBITDA, $0.04 in EPS and $0.83/share. Most importantly, an improvement in ratings should lead to improvement in syndication, a significant source of incremental profits,” Ryvicker explained.

“Retrans should provide an incremental $0.04 of EPS and $1.05 of equity value. It is our belief that NBC will start receiving retrans for its 10 O&Os in 2013. We took a detailed look at the overlap with the largest MVPDs, noting that CMCSA is clearly No. 1 with 7.2M pay-TV HH. The other more significant MVPDs include DTV at 4.7M pay-TV HH and TWC at 3.9M. On a net basis (excluding CMCSA), we calculate an incremental $0.04 of EPS and $1.05 of equity value generated from these payments,” the analyst told clients.

“Reverse comp [from stations paying the network a share of retrans] could result in $0.10 of EPS and $1.90 of equity value. NBC is currently pursuing a ‘proxy plan’ whereby the network would negotiate retrans payments with the MVPDs on behalf of all NBC stations and then pursue a 50/50 split. Assuming NBC requests the same fee for all stations, we calculate an incremental $0.10 of EPS and $1.90 of equity value/share,” Ryvicker wrote in explaining the upside at NBC.

In addition, she said, Wall Street is overlooking NBCU’s incremental deals with Netflix and other OVDs [online video distributors], which could add $0.02 to EPS and $0.30 to equity value/share.

“We reiterate our Outperform rating on CMCSA shares and our $32-34 valuation range,” the analyst said. Comcast’s stock closed July 1 at $25.73.