Comcast Beat Its Earnings Goals. So Will Media Spinoffs Fix Its Broadband Problem?

Comcast stock (CMCSA) rose in early morning trading after quarterly profits topped Wall Street estimates, but spinning off its media assets won't automatically solve its underlying broadband customer loss. While splitting off its media assets makes the business simpler, Comcast still has to compete with phone companies and satellite internet services to keep users.

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CMCSA shares climbed 2.5% to $24.10 before the opening bell, rebounding from recent low levels. The gain came as adjusted second-quarter earnings reached $1.04 per share, topping analyst expectations of 97 cents per share. Total revenue reached $29.9 billion, which also came in higher than the $29.2 billion that Wall Street projected.

Comcast Topped Its Quarterly Financial Estimates

The solid earnings report gave investors a reason to buy shares after a long period of weak stock performance. Over the past year, Comcast's stock has dropped nearly 30% as competitors continue to challenge its internet operations.

Telephone companies like Verizon (VZ), AT&T (T), and T-Mobile (TMUS) have been pulling customers away with wireless home internet services. Satellite services from companies like SpaceX have also added extra choices for rural users, putting direct pressure on Comcast's traditional service footprint.

Broadband Losses Are Troubling Comcast

Even with the positive profit figures, the company's broadband division continues to lose users. Comcast lost 167,000 residential internet customers during the three-month period, slightly higher than the 165,300 subscriber losses analysts had expected.

The loss of internet users remains a primary concern for investors because fast broadband connections serve as the main source of cash flow for the entire company. Keeping its main internet customers is vital for Comcast's long-term success, even if its movie studios do well.

Media Spinoff Could Help Comcast

To help ease these business pressures, Comcast plans to split into two separate companies over the next year. The company intends to spin off NBCUniversal and Sky into a stand-alone media firm while keeping its core broadband and wireless services.

Wall Street analysts view this structural change as a positive move that could help unlock hidden value in the stock. 5-star analyst Bryan Kraft at Deutsche Bank (DB) upgraded the stock to Buy with a $32 price target. Kraft explained that this move will help "unlock valuation upside by forcing the market to value NBCU and Comcast separately, instead of assigning a (lower) cable multiple to the entire enterprise."

Kraft added that his team sees "~30% upside over the next 12 months based on this value unlock." Though management said no deal is planned right away, he explained that splitting into two independent companies gives Comcast the freedom to jump on future deals.

Is Comcast Stock a Good Buy Right Now?

Turning to Wall Street, analysts have a Moderate Buy consensus rating on CMCSA stock based on six Buys, 10 Holds, and one Sell assigned in the past three months, as indicated by the graphic below. The average 12-month CMCSA price target of $31.52 per share implies 34% upside potential. (See CMCSA stock forecast)