Wall Street expects Comcast Corp to post another solid quarter of customer additions and financials, but investors increasingly worry that the No. 1 U.S. cable company could pay a price for its various ongoing regulatory run-ins.
Comcast Chief Executive Brian Roberts has become a frequent visitor to Washington, D.C., this year, attending four different congressional hearings on Capitol Hill about his company's proposed $30 billion joint venture with NBC Universal.
Other regulatory and legal issues are also brewing, as Comcast gears up to report first-quarter earnings on Wednesday. These range from wrangling over retransmission consent to questions about set-top box standardization. Even Comcast's recent victory against the Federal Communications Commission in a long-running case may lead to new regulatory fights.
The concern for some investors is that company's management could get overrun by these challenges and, more importantly, may have to give up some of its competitive advantage and leverage in a bid to quell regulators.
Analysts say the threat of distraction -- and the higher regulatory risk -- explains why the cable company's stock has underperformed its peers since the start of the year.
Comcast stock has rallied around 12 percent this year, but No. 2 U.S. cable company Time Warner Cable Inc is up 31 percent while Cablevision Systems Corp is up 23 percent.
The biggest question mark hanging over the stock is the high-profile deal that will give Comcast a controlling interest in NBC Universal.
Many investors are putting Comcast in a holding pattern while the merger get deliberated in Washington, said Collins Stewart analyst Thomas Eagan.
While few expect the Department of Justice or the FCC to block the NBC joint venture, some worry Comcast might be forced to give up leverage in programing fee negotiations with cable networks. For instance, regulators might not allow Comcast to switch off a network's signal if they cannot agree on fees.
Regulators, who will review the NBC deal separately, are also expected to play hardball with Comcast.
Investors may be underestimating the significance of the regulatory conditions that are likely to be attached to this deal, said Sanford Bernstein analyst Craig Moffett.
There was some evidence of this when the FCC extended the deadline for public comment on the deal following requests from some members of Congress. That means the review process will be put on hold for 45 days, giving the public more time to make known any concerns about the deal.
Executives at Comcast downplayed the extension, saying they remain confident they will make their fourth-quarter deadline to close the deal.
Meanwhile, even Comcast's court victory earlier this month over the U.S. media industry regulator, the Federal Communications Commission, is something of a Pyrrhic victory, said Stifel Niclaus analyst Rebecca Arbogast.
The court ruled that the FCC overstepped its boundaries when it sanctioned Comcast for its Web network management practices. But analysts worry that the FCC could respond by seeking authority to regulate broadband in the same way it does broadcast airwaves.
The biggest risk to Comcast is the unknown, said Arbogast. You wonder how much more is the government going to ask Comcast to do to satisfy those existing issues?
Facing challenges on a number of fronts, CEO Roberts has fine-tuned his management team. In December, he tapped right-hand man Stephen Burke, the chief operating officer, to oversee the integration of NBC Universal. He signed Burke to a new five-year contract in the process -- one that, including the signing bonus, made him the Comcast's highest paid employee last year.
Roberts, meantime, recruited former Charter Communications CEO Neil Smit to run the company's vast cable operations. He is also relying heavily on David Cohen, assigned to oversee Comcast's regulatory operations in Washington. So important has Cohen become that he was the company's fourth-highest paid executive last year.
All of this comes as Comcast's actual business -- controlling a vast cable network that runs TV, telephone and broadband Internet connections to homes and offices -- is steaming ahead.
Miller Tabak analyst David Joyce expects Comcast to report adding 293,000 Internet access customers and 247,000 phone customers in the first quarter. However, it will likely have lost 98,000 video customers.
Joyce rates Comcast's stock a buy, saying that its earnings multiples make it a better bargain than any of its rivals, including Cablevision and Time Warner Cable.
(Reporting by Yinka Adegoke; Editing by Richard Chang and Maureen Bavdek)