Is NBC Universal An Optimum Investment For Comcast Corporation (CMCSA)?

Federal support to Internet networking:  There have been stringent conditions on which this NBC Universal deal has been sanctioned.

1). Comcast is supposed to relinquish its rights to Hulu.

2). Programming cannot not be withheld from any sort of legal competitor.

3). Equal agreement terms for all parties, with respect to the market.

From the company report:

“As a result of the NBC Universal transaction, we are subject to the NBC Universal Order and the NBC Universal Consent Decree, which have imposed numerous conditions on our businesses relating to the treatment of competitors and other matters. Failure to comply with the laws and regulations applicable to our businesses could result in administrative enforcement actions, fines and civil and criminal liability.”

Transaction payment terms:  The transactions are to be funded with $11.4 billion in cash, $4 billion of subsidiary senior unsecured notes to be issued to GE, $2 billion of borrowings under Comcast and/or subsidiary bank credit facilities and $725 million of subsidiary preferred stock to be issued to GE.

With $11 billion of cash on hand as of 31 December 2012, high debt-to-equity ratio of 78.9 and current ratio of 1, the acquisition will tighten Comcast’s working capital budget. Comcast will have to perform under pressure and only revenue growth can sustain the company’s future stock performance.

Bottom line

While the deal certainly has a lot of importance for Comcast, it is wise to think about the latest technological changes and their effects on the business model. With tight working capital, unsteady market consumption preferences, and new-age technological breakthroughs, things might get tougher for Comcast, and that will be bad for Comcast shareholders.

Comcast needs to look into these factors in the coming few quarters, and that might help you make a decision on Comcast as an investment. Having said that, Comcast is a big name in the IT, media and entertainment industries, and will always have a lot of traction downward. So holding the stock for a few quarters ahead is the right thing to do at the time.

The article Is NBC Universal An Optimum Investment For Comcast? originally appeared on Fool.com and is written by Suman Chatterjee.

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