Comcast Faces Increasing Competition From Direct Satellite (1 Viewer)


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Apr 18, 2005
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Morgan Stanley analyst Richard Bilotti reiterated an “equal-weight” rating and $35 price target on Comcast (nasdaq: CMCSA - news - people ) ahead of the cable company's earnings report on Feb. 2.

“In 2006, we believe that high-definition competition from direct broadcast satellite and [the] deployment of free cash flow are the two principal issues that will drive the short-term trading levels of Comcast’s shares," Bilotti wrote in a recent note.

Cable companies need to increase capacity to compete against more sophisticated packages from satellite providers, according to Bilotti. This will likely lead to increased capital expenditures.

"We have also examined an aggressive bundling scenario, which reinforces our non-consensus view that aggressive voice-over-IP bundling would be destructive to returns and appears unlikely,” said Bilotti.

The analyst believes an absence of clear free cash flow allocation strategies and the past history of dilutive mergers throughout the media industry has produced a crisis of investor confidence through the media sector.

"The current market prices indicate that investors believe that cash flows will be reinvested in a suboptimal manner," Bilotti said. "We continue to favor content over distribution, given the greater likelihood of restructurings and large returns of capital to shareholders."

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