Monday, March 09, 2009

Updated Chart of CCS (Comcast 6.625% Senior Notes Due 2056)

At $15.70, CCS yields 10.5% and trades at a dollar-price equivalent of $.62 on the dollar (62% of par value). 30-year Comcast senior notes trade at a 7.6% yield ($95 avg dollar px) for similar risk. Why? we believe closed-end preferred funds (Nuveen) have been forced to liquidate shares of CCS in order to de-lever their fund. Based on this technical, CCS may decline further and I am buying into the drop. I would love to buy this at $15 or lower, where I bought it several months ago (before subsequently selling in the low $20s).

To refresh, Comcast generated more than $800Mln FCF in Q4 2008 and is cutting costs significantly. The bonds are actually on review for upgrade by the rating agencies. Leverage is low at 2x, given the stable business risk profile.

Recommendation: Buy at $15.70 and add as it drops. Regression-line suggests $18.50 as fair-value price (yield would be 9% at that price), but this issue could trade as high as $20-21/share, provided that the 30-year treasury yield does not rise significantly in the near-term. At a 10.5% yield for a stable, high-grade corporate bond, this looks attractive.

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