That’s according to Wall Street firm MoffettNathanson, which made the case in a research note to clients this week. “Cable is doing really well, and yet Comcast is doing its level best to become something other than a cable company,” MoffettNathanson wrote in a research note Thursday (July 26). With Comcast still focused on diversifying beyond cable, the Wall Street firm suggested investors set their sights on rival Charter Communications Inc. (CHTR). “So how ironic is this? The best way to play Comcast’s strong results…is to buy Charter.” (See more: Comcast Drops Bid for Fox, Ceding to Disney.)
Comcast Beats On The EPS Front For Q2
The Wall Street firm was compelled to make that argument coming off a strong showing for Comcast in its second quarter. The Philadelphia-based cable operator reported earnings of $3.22 billion or $0.69 a share for the second quarter. Excluding charges, EPS came in at $0.69 a share, surpassing the Wall Street EPS estimate of $0.60 a share. Revenue increased 2.1% to $21.7 billion, short of the $21.9 billion Wall Street was looking for. Comcast said it added 260,000 internet customers for the three months ending in June, marking a 49% jump from a year ago. Broadband revenue increased 9.3% year-over-year. Comcast also disclosed it had $4.3 billion in free cash flow. It did lose video subscribers during the second quarter.
“Far from being something that Comcast should diversify away from, the core Cable business is actually a far better business than current valuations give it credit for being,” MoffettNathanson wrote in the research note. Charter could be attractive to investors given shares are down around 18% this year while Comcast’s stock is up more than 5%. Barron’s peg’s Charter’s current valuation at about $65 billion.
MoffettNathanson Doesn’t Expect Comcast To Take Its Advice
Still, despite MoffettNathanson’s suggestion, the firm doesn’t think Comcast will take its advice as it pursues Sky. (See more: Comcast Raises Its Offer for Sky to $34B.) Instead of going after another content asset in the form of Sky, it advocated buying back shares. “The strong fundamentals at cable will continue to take a back seat to Comcast’s ambitions for Sky,” MoffettNathanson wrote in the note, according to Barron’s. “Comcast’s bid for Sky at 14x Ebitda is impossible to justify versus the always-available alternative of buying back stock at what is now less than 7x EBITDA…a multiple that to us looks too low.”
(This post has been updated throughout)