Media

Why Comcast and Twitter Shared Big BofA Upgrades

Jon C. Ogg

Published: November 17, 2020 11:24 am

Many investors missed out on the massive recovery rally that managed to go back to all-time highs in 2020 despite a double-dip of the pandemic. This has left many investors wondering how to be positioned heading into 2021 as the pandemic should have at least one effective vaccine and as the post-election period emerges.

While the daily flow of analyst upgrades and downgrades often has a slew of investment ideas, sometimes it is the top calls from the biggest firms that should be given the most attention. After all, they may result in the most action due to being presented to the widest or largest number of investors.

The US 1 List from BofA Securities is similar to other lists, such as Top Picks and Conviction Buy lists, you hear about elsewhere. To be a US 1 pick, a stock comes with a Buy rating and is believed to be among BofA’s best investment ideas. It is a managed list that comes with a goal of generating superior investment performance over the long term.

Two very well-known companies were added to the US 1 List on Tuesday: Comcast Corp. (NASDAQ: CMCSA) and Twitter Inc. (NYSE: TWTR). Both companies are technically in the media and communications space, but they have entirely different targets, goals and models.

Comcast was covered after its third-quarter earnings report with a $53 price objective at that time. BofA’s Jessica Reif Ehrlich had noted that Comcast’s third-quarter results represented a continued momentum with strong execution at its core cable business. The gains were driven by broadband, and that plays a central role in Comcast’s new three-pillar strategy that also includes aggregation and streaming.

She also noted at the time that its strong balance sheet to weather through the Theme Park operations and that it will be in a strong position compared with many financially fragile smaller theme parks once the pandemic has passed.

The last BofA investment rationale for Comcast said:

Share gains in high speed data are likely to continue for several years. Telco fiber competition increases pressure, but gains in higher-margin data services should more than offset video losses and drive margin expansion for years to come. Initiatives in business services, wireless and streaming offer growth avenues, while substantial free cash flow gains and deleveraging will fund future capital returns. NBCU now offers significant upside as it is likely to rebound significantly post the COVID crisis.

Comcast was down 0.7% at $49.18 after the BofA call, as the markets were looking weak on Tuesday. Its Refinitiv consensus price target is $52.34.

Twitter has been all over the news for its micro-posting for social media ahead of, during and after the election. Twitter has not been without controversy over the company’s use of selective censorship, and that has been driving some users away to an alternative platform.

The latest report was an eCommerce and Internet traffic analysis of October that was issued on November 16.

BofA’s Justin Post noted that Twitter comes with a $58 price objective, which is derived using a valuation based on eight times the expected 2022 multiple of enterprise value/revenue. That may sound high, but the BofA take is that its own revenue multiple is at a discount to peers at about nine times.

Driving the expected upside are product improvement opportunities, upside potential for total revenue 2021, and a potential positive sentiment boost based on a heavy event calendar. Still, the firm did caution about potential pressure on monthly users and pressure on usage, as well as noting risks of (stock) compression if Twitter’s revenue growth slowed down or from competition and regulatory concerns.

Twitter traded up 1.4% at $43.31 on Tuesday, and the consensus target price is $43.26.

Two other stocks were added to the US 1 list as well: Eaton Corp. (NYSE: ETN) and NICE Ltd. (NASDAQ: NICE) were added in the larger call. The stocks removed were Berry Global Group Inc. (NYSE: BERY), Charter Communications Inc. (NASDAQ: CHTR), Splunk Inc. (NASDAQ: SPLK) and United Parcel Service Inc. (NYSE: UPS).

Remember that no single analyst call should ever be used as the sole decision to buy or sell a stock.

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