Comcast Corp. stock got hammered on Monday — down nearly 6 percent while the broader market fell 0.7 percent — on Wall Street concerns that the U.S. cable giant overpaid for Europe's Sky television and internet service.
On Saturday, Comcast won the sealed-bid auction for Sky in London with a $40 billion cash offer — $50 billion with Sky's debt — beating a competing bid by 21st Century Fox/Walt Disney Co.
Two analysts published reports Monday saying that they believe Comcast paid exorbitantly for the U.K. company whose main business has been satellite TV.
"We fear that Sky will be an albatross," Craig Moffett, one of the nation's leading telecommunications analysts with the firm MoffettNathanson, said. "Perhaps the best that can be said in defense of Comcast shares is that the rest of Comcast is still cheap; Sky isn't all that large as a share of Comcast's total business. But, by having grossly overpaid for Sky, Comcast is less cheap than it was."
Moffett downgraded the company's stock to neutral, with a price target of $36 a share instead of the previous target of $41.
"We are very skeptical that this will turn out to be good for Comcast," Moffett said separately Monday in a conference call with his research clients, who are typically institutional investors.
Timothy Horan, analyst with Oppenheimer & Co., downgraded Comcast's stock rating to perform from outperform for the first time in nine years. "The company is set to face increased competitive pressures and is now fairly valued," Horan wrote.
In the U.S. market, Comcast faces competition from Netflix and Amazon for pay-TV services. In addition, U.S. wireless carriers are gearing up to offer superfast 5G, which can be marketed as an alternative to Comcast high-speed internet services.
Comcast's debt will balloon to about $100 billion or more, depending on how many Sky stockholders take up Comcast's offer. In good news for the Philadelphia company, Moody's Investors Services maintained Comcast's credit rating on its billions of dollars in unsecured debt.
The company had no comment on Monday. But Comcast chief financial officer Mike Cavanagh said on Saturday that Sky "sets Comcast up for decades" by allowing the U.S.-focused company to enter the European market.
"It's a fantastic move for Comcast," he said. "There will only be a handful of global media companies."
The Comcast deal for Sky — which now will be considered by Sky shareholders — will catapult the U.S. cable giant into European markets. With 31,000 employees, Sky sells satellite-TV and high-speed internet services to 23 million subscribers in the United Kingdom, Ireland, Germany, Austria, Italy, Spain, and Switzerland. Comcast has roughly the same number of cable-TV customers in the United States, though residential high-speed internet services are a bigger business for the company.
Comcast shares closed down $2.27 at $35.63. Disney stock rose 2 percent to $112.77.
Company officials have said that Wall Street has repeatedly opposed big deals, immediately sending the stock price down. Comcast shares fell 7 percent when it announced a deal for AT&T's broadband business in July 2001 and again when the news leaked in October 2009 that Comcast was planning to acquire NBCUniversal.
But Comcast stock recovered and easily beat broad stock market averages over time.
Comcast would like to complete the Sky deal by the end of November.