Barron’s rank an article last week saying that Comcast (CMCSA) is undervalued. The financial magazine quotes one money manager as saying  "Comcast trades on a very low valuation, and investors need to wake up to the fact the threat from new competition is greatly exaggerated. When that happens, the stock will finally soar."

CMCSA has been very successful with its so-called "triple play". It now has passed Vonage (VG) in total VoIP subscribers, putting it into first place in the US market. It digital TV subscriber base is growing. Over the first six months of this year, Comcast’s TV revenues rose 27% to $8.8 billion, and Internet climbed 42% to $3.1 billion. Some of this is clearly due to CMCSA buying certain assets from bankrupt Alephia, but the numbers are still pretty good.

Assuming that Wall St. is fairly efficient at valuing very large companies, it is odd that CMCSA is off 12% so far this year, while telecom rival AT&T (T) is up nearly 10%. Comcast has the triple play customers, so the numbers should be the stock prices should be the other way around.

Verizon may be building out a fiber network to compete with Comcast, but that does not mean it will get the customers.

The answer to the stock valuation mystery for CMCSA is perverse. It has all of the customers. It has customers to lose. Telecom fiber may be in the game late, but with almost no customers, it has a huge incentive to rip whatever it can from Comcast and its fellow cable companies. If AT&T and Verizon can even take 10% of the cable customer base, it will have a significant affect on cash flow and operating earnings.

CMCSA’s stock is down because it has something to lose.

Douglas A. McIntyre

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