The Republican-led corporate tax rollback will drive a cumulative $14.4 billion increase in cash flow for Comcast by 2021, according to MoffettNathanson analyst Craig Moffett.
In a note to investors, Moffett said that unless Comcast makes a major asset acquisition in the near-term future—and the analyst is betting the top U.S. cable operator won’t—the company will have no choice but to use its free cash flow to buy back stock, thus increasing share price.
Moffett increased Comcast’s target share price to $52, up from $45. Last month, the Republican-led Congress and White House passed a bill rolling back the corporate tax rate from 35% to 21%.
The analyst suggested that following the corporate tax giveaway, Comcast’s current financial model resembles that of the erstwhile Time Warner Cable a decade back. As it grew robustly, TWC promised to keep its leverage at a constant 3.25 x EBITDA.
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By doing that, “TWC was signaling that they would be buying back stock at an incredible pace,” Moffett said.
“Nearly 10 years ago, Time Warner Cable, arguably following a model that had already been architected by Liberty Global in Europe, achieved spectacular shareholder returns…by buying back stock while keeping leverage constant,” Moffett explained. “Charter’s stock has done even better, appreciating more than tenfold since the start of 2010 by executing the same strategy (with an even higher leverage ratio. Comcast has arguably executed better—operationally—than either company over the same period.”
So, is Comcast about to start yielding crazy returns for shareholders?
“To be clear, we aren’t suggesting that Comcast can generate returns anything like what we saw in the aforementioned Time Warner Cable and Charter examples,” the analyst said. “Still, few companies would appear to have a clearer path to steady value accretion from the new tax policies.”