By Ryan Barnes with comments by Jon Ogg. Edited by Douglas A. McIntyre

Comcast Corporation (CMCSA; $43.30)

Unlike a competitor like Time Warner, Comcast is pretty streamlined in their cable outfit, and it contributes the vast share of profits (over 95%).  Whatever value one wishes to place on their 6 cable networks should be considered gravy – the cable assets and the subscribers they reach are the key to any breakup value of Comcast. 

The industry benchmark measure is the value per subscriber.  Based on the current market value of Comcast stock, the value per subscriber is around $3700.  When Comcast bought AT&T’s cable assets in 2001, they paid just over $4200 per subscriber.  They’ve since invested billions in infrastructure to get their bundled package, including digital voice and Video-on-demand, to the doorstep of nearly all their customers.  In the most recent big cable deal, Comcast and Time Warner split up the Adelphia assets, paying just over $5,000 per subscriber including assumed debt.  The general rise in subscriber value seems to be just keeping pace with inflation, and with relatively few deals in the industry anymore these benchmarks may be low considering the capital upgrades, but this remains a fair value point. 

If we take the extra safety precautions of netting out the current accounts, adding in other stock & franchise investments, and subtracting long term debt (which currently is a hefty $26b), we arrive at a breakup value (at $5k per subscriber) of $49 per share.  If we leave the debt in the equation, which is more the norm in recent cable deals, and the per-share breakup value jumps to $61

Ryan Barnes

Ryan Barnes has over 10 years’ experience in portfolio management and investment research, covering equities, fixed income, and derivative products. Ryan spent the past 5 years working as an institutional trader & manager for high-net worth investors, working with Merrill Lynch, Charles Schwab, Morgan Stanley, and many others.  Ryan is currently working as a writer and financial modeling consultant on hedging and capital appreciation strategies, and does not own securities in the companies being covered.

Jon Ogg’s comments:

There is the dual-class of stock with the CMCSA and CMCSK shares; with the
Roberts family effectively having voting control over the company while
actually owning a small percentage of the total stock.  This is why Roberts
was one of the "Highly Entrenched Corporate Leaders" featured by us before.
http://www.247wallst.com/2007/01/entrenched_corp_7.html

Comcast also faces the huge barrier if is it really able to be broken up?  It
has roughly a $90 Billion market cap, has relatively high earnings multiples
that might prevent a PE firm or other conglomerate from being able to
financially absorb it, and has the law of big numbers working against it.
It is also up 75% from the last year’s lows.

Methodology.

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