Why Goldman Sachs Now Sees Massive Upside for Comcast

With all the fears about cord-cutters, it seemed like the old-fashioned cable companies might be doomed in their primary business models of selling expensive and bulky monthly subscription packages for those needless cable channels. After all, it is true that cord-cutters can target more specific interests for cheaper than what most full-blown cable subscriptions offer.

The death of cable companies has been exaggerated. After all, these companies offer lightning-fast internet access, digital phone lines and even home security services. Without a fast internet connection, no cord-cutter is going to have a pleasant experience streaming video online all day.

Comcast Corp. (NASDAQ: CMCSA) is the king of cable companies, and Goldman Sachs just raised its rating from Neutral to Buy with a $54 price target. The firm even added Comcast to its prized Conviction Buy list.

Goldman Sachs analyst Brett Feldman sees strong fundamentals and other issues working in Comcast’s favor. The target now calls for Comcast to sustain strong growth of 11% for adjusted earnings per share and 12% in free cash flow. The firm is even seeing a chance for 15% dividend growth ahead due to healthy business fundamentals.

Given its theme park and NBC Universal business segments, Comcast now is expected to see sustained growth of that size for the next five years or so.

Feldman also suggests that Comcast is likely to add almost 1.1 million broadband customers in 2019 alone, with an additional million subscribers each year through 2024 as household demand for higher bandwidth is rising. The so-called legacy internet services just might not be fast enough to meet the needs of subscribers.

As far as the new $54 price target, that was actually up from a prior $44 target price. Despite shares having gained more than 25% so far in 2019, the implied upside remains high as the post-analyst call gain is just 1.6% to $43.70 on Wednesday.

Comcast now has a 52-week trading range of $32.61 to $44.13, and the prior consensus target price was $48.30. Comcast’s market cap is about $198 billion, and its current dividend yield is near 1.92%.

If Goldman Sachs is right, that $54 target price still leaves an implied upside of 23.7%, before even considering the current dividend yield and future potential dividend hikes. The traditional implied upside for most analyst calls with Buy/Outperform ratings is about 8% to 10% at this stage in the bull market.

Investors also should keep in mind that the S&P 500 crossed above the 3,000 level on Wednesday as well. While investors may have every right to be leery of big analyst upgrades as the stock market hits all-time highs, Goldman Sachs’s aggressive $54 target price is actually $3 shy of the street-high analyst target price.