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Expenditure plan hurts value of Comcast shares

Investors apparently are perplexed by the scope of capital spending for 2007. Other cable stocks tumble too.

February 02, 2007|From Reuters

Comcast Corp. said Thursday that its quarterly profit tripled, but higher-than-expected spending plans for 2007 dragged down shares of the largest U.S. cable company and its rivals.

Comcast forecast revenue growth of at least 11% in 2007, which was in line with market expectations, but its estimate of $5.7 billion in capital expenditure was above the average analyst forecast of $4.8 billion, according to Reuters Estimates.

The company said most of the spending will be to accelerate the introduction of products like high-definition video and boost its relatively new business of selling services to small and medium-size companies.

Shares of Comcast fell $1.43, or 3.2%, to $42.92. Time Warner Inc., which owns the No. 2 U.S. cable TV operator, fell 1.1%. Cablevision Systems Corp. fell 3.3% and Charter Communications Inc. fell 3.1%.

"All cable valuations hinge on Comcast," said Craig Moffett, an analyst at Sanford C. Bernstein & Co. "A reduction in Comcast's enterprise value means a very large reduction in the equity value of the more heavily leveraged players," he said.

Comcast's stock has risen about 70% since the start of 2006, spurred by cable's successful marketing of so-called triple play video, high-speed Internet and phone services.

Analysts say further share price gains will be limited this year as competition from telecom providers such as AT&T Inc. and Verizon Communications Inc. steps up.

But Chief Executive Brian Roberts said Comcast had an opportunity to grow faster in 2007, supported by investment.

"If that drives some additional capital spending, I think that's a great opportunity that we should embrace," he said. "I think that in the fullness of time people will see that this is going to power our business for years to come."

Comcast reported its strongest growth in basic video subscribers in 10 years during the fourth quarter, adding 110,000 new customers.

That beat the 54,000 additions forecast by Moffett, who said the growth showed that triple play is pulling Comcast and other cable companies ahead of satellite TV rivals.

DirecTV Group Inc. shares fell 1.2% and EchoStar Communications Corp. fell 1.5%.

Comcast Chief Financial Officer John Alchin said the company expected to add even more basic video subscribers in 2007 than the 80,000 it added in 2006.

Comcast expects cable revenue growth of at least 12% in 2007, and said it would add at least 6.5 million revenue generating units, which is the number of individual products it sells to subscribers.

The company said fourth-quarter net profit rose sharply to $390 million, or 18 cents a share, from $133 million, or 6 cents, a year earlier.

Revenue rose 30% to $7.03 billion, close to the average $7.05 billion analyst forecast from Reuters Estimates.

In the fourth quarter, Comcast said it signed up 613,000 digital video subscribers and added a net 508,000 digital phone customers along with 488,000 high speed Internet subscribers.

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