Comcast Corporation (NASDAQ:CMCSA, ETR:CTP2)'s decision to spin off its cable networks and some digital assets into a separate company is a positive strategic step as it may reduce regulatory hurdles for the company to attempt another merger with a large cable peer, analysts at Bank of America believe.
The media giant announced on Wednesday it intends to create a new publicy traded company (SpinCo) which will be home to NBCUniversal’s cable television networks, including USA Network, CNBC, MSNBC, Oxygen, E!, SYFY and Golf Channel along with complementary digital assets including Fandango and Rotten Tomatoes, GolfNow and Sports Engine.
Comcast will maintain ownership of its NBC broadcast network, Bravo, Telemundo and Peacock as well as its film and TV studios.
“While we believe that the significant exposure to news and sports content will help support programming carriage rates, the lack of NBC content to bundle into programming contracts could prove to make rate negotiations more challenging until SpinCo is able to increase scale,” analysts wrote.
Analysts see the move as positive for Comcast as it indicates a willingness to unbundle slower-growing assets while potentially creating an entity that cn can gain scale to limit declines and drive growth. It should also be accretive to Comcast parent growth.
“The transaction should be leverage neutral to Comcast. Initially, the deal would be likely be dilutive to revenue and EBITDA growth but be accretive to growth over time given the slower/declining growth of cable networks, particularly as Peacock would be post peak losses and still growing rapidly,” they wrote.
“SpinCo should have ‘capacity for attractive capital return policy,’ which could consist of either dividends or share repurchases.”
The bank’s analysts awarded Comcast a ‘Buy’ rating and a $50 price target. Shares of Comcast traded up 0.8% at $42.66 on Wednesday afternoon.
“Supported by its strong balance sheet and healthy free cash flow generation, Comcast should drive solid capital returns and at approximately 6x is attractively valued, in our view,” they concluded.