Comcast Stock Up 35%, But Full Recovery Far From Over

CMCSA: Comcast logo

Comcast stock (NASDAQ: CMCSA) has increased almost 35% (vs. 60% for the S&P 500) to its current level of $45. This is after falling to a low of $34 in late March, as a rapid increase in the number of Covid-19 cases outside China spooked investors, and resulted in heightened fears of an imminent global economic downturn. But is the stock fairly valued now that it has fully recovered to its pre-Covid high (February 2020 high) of $45? We believe that this time the stock has the potential to rise further by close to 10%, as its recent entry into the streaming war is expected to help Comcast. With its subscriber count growing in the next few months, the positive momentum and outlook is likely to be reflected in the stock price. You can see a detailed comparison of Comcast’s stock performance during the current crisis with that during the 2008 recession in our dashboard analysis – Comcast’s Recovery Is Not Yet Complete.

How Did Comcast Fare During The 2008 Downturn?

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We see Comcast’s stock declined from levels of less than $10 in October 2007 (the pre-crisis peak) to little over $5 in March 2009 (as the markets bottomed out) – implying that the stock lost more than 45% of its value from its approximate pre-crisis peak. This marked a drop that was smaller than the broader S&P, which fell over 50%.

However, Comcast’s stock recovered strongly post the 2008 crisis to almost $7 in early 2010 – rising more than 30% between March 2009 and January 2010, which was still less than the S&P which bounced back by about 50% over the same period.

During the current crisis, Comcast’s stock lost one-fourth of its value between 19th February and 23rd March 2020, and has already recovered to its February 2020 peak. The S&P in comparison fell by about 35% and rebounded by 60%.

What’s The Trigger For An Upside?

The global spread of coronavirus led to lockdown in various cities across the globe, which affected industrial and economic activity. The shutdowns in major cities led to people sitting at home, with home confinement leading to higher demand for streaming services and home entertainment options. But lower consumer spending and lockdowns have adversely affected Comcast’s advertising and theme park revenues in Q2 2020, with Comcast’s revenues for the quarter declining 12% y-o-y. However, the launch of Peacock – Comcast’s streaming platform – and the recently increased demand for streaming services, is likely to prove beneficial for the company.

The rally across industries over recent weeks can primarily be attributed to the Fed stimulus which largely calmed investor concerns about the near-term survival of companies. As the lockdowns are lifted and people venture out for work and other reasons, streaming demand for the established players could be slightly lower than what was seen during the recent months of complete lockdown. However, the hit won’t be felt much for new players like Comcast and AT&T which have only recently ventured into streaming. Comcast’s Peacock had an impressive debut, with it recording 10 million signups within 3 months of its launch. Though this compares unfavorably with giant Disney+ which had a stellar debut, the bright outlook for streaming business and the expected continued subscriber addition is likely to boost the stock price as investors’ focus has shifted to 2021 numbers. Additionally, gradual opening up of the economy also bodes well for Comcast’s theme parks business and advertising revenue. Thus, diversification of its business into a fast-growing vertical (streaming) and the projected pick-up in traditional business segments of the company in the next few months is likely to take the stock 10% higher from its current level. As per Trefis, Comcast’s valuation works out to $49 per share.

For further perspective of the streaming world, see how Disney compares with Netflix.

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