The hottest names this week were ATUS (245bps better than the S&P), DISH (237bps), WWE (182bps), AMCX (92bps), and CBS (5bps).
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With CMCSA earnings coming up next week (1/23), we provide our thoughts on the numbers, sentiment and what to do with the stocks into the print. Please see the Full PDF link below for our detailed 30 page slide deck. OK
This note details our conversations with London investors, with the biggest surprises being: 1) The skepticism regrading New DIS – particularly the value of streaming vs. long-tailed content. That said, should uncertainties become more certain, this is the one most still want to buy. 2) The tremendous pushback on CMCSA – all because of Sky. And 3) the number of requests for our ATUS and OUT models (which must be positive signs, no?). PERHAPS THE BIGGEST TAKEAWAY IS HOW IMPORTANT MANAGEMENT TRANSPARENCY AND CREDIBILITY HAVE BECOME – above and beyond the numbers and the balance sheet.
Eric, Stephan, Se and I are reintroducing our WHAT’s HOT WHAT’s NOT weekly wrap up – this being our first edition from Wolfe Research.
It’s no secret that the RSN sale is not going swimmingly. While the press is reporting significant interest (i.e. 40 bidders in Round 1), the price tag seems to be well below what we would call DIS’s “acceptable range” so far. Of course, there is still quite a bit of runway left to get a final deal done – so it’s not ovah until it’s ovah. In this note, we dive deep into the RSNs – with a detailed history, financial snapshot and potential valuation. We also look at our coverage group to see who has the most interest AND ability to potentially transact. We have 2 over-riding conclusions: 1) While DIS is likely to lose ~$9B of deal value, the RSN sale does NOT materially impact PF synergies, PF growth, or DIS’s ability to de-lever. 2) We view the Yankees as the most likely buyer of YES ($5-6B) and SBGI as the most likely “winner” (or not) of the remaining 21 RSNs (~$11B).
We finally got the PF GAAP Sky estimates, and they were way better than we expected. This afternoon (12/18/18), CMCSA filed an 8-K with pro-forma Sky GAAP financial metrics for 2017A and the first 6 months of 2018. Honestly, the data was a pretty nice surprise to us given that there appears to be a small positive impact to EBITDA post-IFRS and purchase price accounting (PPA) adjustments (recall, we had assumed a 20% discount to revenue, expenses and EBITDA across the board). We outline the adjustments below and have removed the -20% discount we had been applying to our Sky PF ests. Bottom line: the PF Sky financials were much better than expected, and we believe these numbers have been even further de-risked. We reiterate our Outperform rating on PF CMCSA and raise our price target to $49 from $48.
We went straight from our launch (check out our 252-page slide deck – which was NOT an easy feat) to a whirlwind of marketing – hitting NYC, NYC (not a typo), Boston, the Mid-Atlantic, and more NYC. Ahead of us is CT, the West Coast, NYC (again, not a typo), and then Europe (Cheers!). The biggest surprises from our first set of meetings have been: 1) The fact that just about every conversation has begun with New DIS and New FOXA (there are way more bulls than bears). 2) There appears to be significant incremental interest in OUT and ATUS. 3) There appears to be significantly more concern re. CBS & VIAB. 4) No one has pushed back on our “downgrade” of DISH (Peer Perform). And 5) Local isn’t a huge focus due to macro and leverage. BOTTOM LINE: We feel incrementally positive on New DIS, New FOXA, CMCSA, ATUS and OUT; we are worried that our positive call on VIAB might take longer to play out.
Before you totally freak out, we want to explain our new position. First, we still absolutely believe that Charlie will monetize his spectrum via a wholesale leasing model, which could ultimately generate a shitton of cash. And we still believe that he will successfully find a partner to help with the Phase 2 part of his network build. We are also NOT worried about the upcoming buildout requirements; nor we do think DISH will go bankrupt. In other words, we are still very bullish on the story. That said, we have watched this stock underperform the S&P – by an average of 9,000 bps - over the past 5 years because apparently it’s not good enough to just BELIEVE. We need to SEE, FEEL and most importantly QUANTIFY, and we honestly can’t. I mean we can – we can put numbers together in a spreadsheet, which we have painstakingly done a bunch of times – but we honestly have no idea if our assumptions are right.
With the Sky deal now closed and FOXA clearly off the table, we feel like the risk is off this one (for now anyway), and we can FINALLY focus on the underlying business, which is ACCELERATING.
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