Has Comcast Stock Gotten Too Cheap? 2 Analysts Think So

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Every day, Wall Street analysts upgrade some stocks, downgrade others, and "initiate coverage" on a few more. But do these analysts even know what they're talking about? Today, we're taking one high-profile Wall Street pick and putting it under the microscope...

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Last week was not a fun one to own Comcast (NASDAQ: CMCSA) stock. After showing strength early in the week, Comcast dropped a bombshell on Wednesday. The company revealed that current trends suggest Comcast could end up losing between 100,000 and 150,000 cable video subscribers in this current fiscal third quarter, as over-the-top, direct-to-viewer streaming apps convince more and more subscribers to cut the cord and ditch their cable packages in favor of buying pure internet service.

Comcast stock dropped more than 6% on the news, but up on Wall Street, some investors are musing that this may have been an overreaction -- and Comcast stock could be a buy.

Are they right about that? Here are three things you need to know.

TD Securities rings the bell

TD Securities was first to clue in to the possible overreaction to Comcast's (admittedly bad) news. As reported yesterday on TheFly.com, TD pointed out that when Comcast stock dropped 6.2% Thursday, it lost $14 billion in market capitalization. Crunching the numbers, TD observed that this works out to "over $90k" in market capitalization lost for each of the video subscribers that Comcast will no longer have at the end of this quarter.

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$90,000? Just how much is Comcast charging for cable these days?!

TD called Comcast's market cap loss "extreme" relative to the number of subscribers lost. After all, the average American today pays about $100 a month for cable service -- $1,200 per year. At that rate, each cable customer lost is being valued at about 75 years worth of revenue. (Comcast stock, by the way, is usually valued at only 2.1 times a year's worth of revenue.)

There is a bright side for this overreaction, though. For investors, the rapid devaluation of Comcast stock may be creating a buying opportunity.

After Comcast stock dropped last week, TD Securities reiterated its buy rating on the stock and doubled down on its $51 price target yesterday. This morning, a second analyst -- MoffettNathanson -- chimed in with an actual upgrade of the stock. Calling Comcast's shares "markedly cheaper" than their price before the subscriber news broke, MoffettNathanson announced Tuesday that it is upgrading Comcast stock to buy and assigning a new price target of its own. At $45, MoffettNathanson isn't quite as optimistic as TD. Still, its new price target implies 16.5% upside from Comcast's recent price of $38 and change.

In fact, throw in a 1.6% dividend yield, and Comcast stock could conceivably return more than 18%!

That is, assuming...

Assuming the analysts are right, that is. But are they right?

Listen, folks -- I'm as big a sucker for a bargain stock as anybody. Still, I can't help but notice that even after Thursday's sell-off, Comcast stock is up 10% so far this year, which is right in line with the S&P 500's performance. Moreover -- and again even after the sell-off -- Comcast stock sells for more than 19 times earnings today, which seems a bit pricey given that most analysts agree the stock can't grow earnings much faster than 10% annually over the next five years.

And the story on Comcast stock only gets worse the closer you look.

For example, like most big-fixed-cost telecom plays, Comcast stock comes with a heaping helping of debt. The company's balance sheet shows $63.6 billion in debt, in fact. So even subtracting out Comcast's $2.7 billion in cash, the stock still has net debt of nearly $61 billion attached to it, pushing Comcast's debt-adjusted market capitalization, or enterprise value, up past $240 billion. That's 25 times Comcast's trailing net income, which, relative to the company's long-term expected growth rate of 10%, makes Comcast look even more expensive.

While there's no doubt Comcast stock has become cheap-er after last week's price adjustment, the stock is definitely not cheap, period. Analysts who say otherwise may not be reading the fine print closely enough.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.