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Comcast (CMCSA) Upgraded To 'Outperform' By RBC Capital, PT Lifted To $46

 February 14, 2013 12:13 PM

(By Balaseshan) RBC Capital Markets analyst Jonathan Atkin upgraded rating of Comcast Corp. (NASDAQ: CMCSA) to "Outperform" from "Sector Perform" and raised price target to $46 from $39.

Atkin is upgrading the stock based on solid cable operating trends versus mixed developments at peers; his favorable view of the accelerated acquisition of NBCUniversal, which contributes to faster revenue and operating cash flow growth characteristics for CMCSA versus peers and should drive EPS accretion; and continued prospects for favorable shareholder remuneration.

Comcast's consolidated revenues of $15.9 billion were in line, with cable/NBCUniversal revenues of $10.1 billion/$6.0 billion. Adjusted EBITDA of $5.3 billion was in line with expectations; cable EBITDA increased 6.7% while NBCUniversal grew 11.4% year-over-year, the analyst noted.

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Business service revenues increased 34.2% year-over-year to $2.4 billion, accounting for 23.7% of cable revenues, Atkin noted. CMCSA continues to gain traction with mid-sized businesses. PSU adds of 503,000 bettered RBC/consensus 435,000/458,000 with HSI adds of 341,000 (RBC/consensus: 309,000/329,000). Video losses of 7,000 were in line.

Comcast's management announced the purchase of the remaining 49% of NBCUniversal for $16.7 billion. CMCSA will also purchase NBCUniversal's 30 Rockefeller Center and Englewood Cliffs facilities for $1.4 billion, the analyst noted.

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Of the $18.1 billion in cash consideration, $11.4 billion will come from cash on hand, $2.0 billion from additional borrowings from credit facilities, $4.0 billion from senior unsecured notes issued to General Electric Co. (NYSE:GE) and $732.5 million from preferred stock, Atkin noted.

The analyst estimates pro forma net leverage ratio at 2.2 times; management's medium-term leverage target is 1.5-2.0 times. He calculates $0.17 of EPS accretion.

Comcast's management announced 20% dividend increase to $0.78/share and plans to repurchase $2.0 billion of common stock in 2013, less than prior-year totals, but Atkin feels the NBCUniversal purchase is an understandable tradeoff.

CMCSA is trading up 0.91% at $40.50 on Thursday.

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