By Andrew Bary

Comcast's move to spin off its media-and-entertainment business this past week came after years of investor pressure and can only help the company's depressed stock.

The plan to separate NBCUniversal in about a year opens up a number of strategic possibilities. It also could lead to a revaluation of Comcast's stock since media companies now fetch higher valuations than the rock-bottom valuation on cable companies Comcast now commands.

Possible deals include a merger of Comcast with Charter Communications, the No. 2 cable and broadband company behind Comcast, or a deal for all or part of NBCUniversal with Netflix, which lost out to Paramount Skydance in the bidding war for Warner Bros. Discovery.

NBCUniversal owns the NBC TV network, the Universal theme park in Orlando, Fla., the Universal movie studio, and the Peacock streaming service, and could be worth $50 billion as a separate company. Comcast is now valued at $85 billion, plus more than $80 billion in net debt.

Comcast's move was a surprise given that management led by co-CEO and controlling shareholder Brian Roberts had been dismissive of the benefits of a spinoff. Co-CEO Michael Cavanagh said in January he didn't see "strategic advantage" from a separation.

But the weakness in Comcast stock may have prompted the decision. The stock was off over 20% year to date prior to the split news this past Monday, down 50% in the past five years and trading at a 12-year low.

Wall Street reacted tepidly to the Comcast announcement as the stock rose 4%, or $1, to $24 a share, considering that analysts had estimated a split could create at least $5 a share in value.

That muted move reflects investor doubts about whether any major deals will occur involving Comcast or NBCUniversal, plus tough conditions in both cable and media. Most cable and media stocks are showing double-digit percentage declines this year.

Comcast executives didn't help by insisting that the spinoff isn't about deals. Roberts answered "absolutely not" when asked on a conference call Monday about whether the split would facilitate potential strategic transactions. Roberts calls the shots since he controls Comcast through a small slice of supervoting shares.

The underwhelming market reaction, however, creates a favorable risk/reward in the stock, which seems to have little downside risk given the current low valuation and upside potential into the 30s.

Comcast trades for just seven times projected 2026 earnings and five times 2026 earnings before interest, taxes, depreciation, and amortization, or Ebitda (a common yardstick for cable and media companies). Both are among the lowest in the S&P 500, which fetches 22 times projected 2026 earnings and 15 times Ebitda.

Comcast has been valued like a cable company, which now fetch some of the stock market's lowest valuations, even though about 20% of the company's projected 2027 Ebitda comes from NBCUniversal. Media companies generally get valued at closer to 10 times Ebitda.

Several Wall Street analysts wrote favorably on the spinoff, valuing Comcast stock in the low 30s on a sum-of-the-parts basis. Deutsche Bank analyst Bryan Kraft upgraded Comcast to Buy from Hold, citing the twin benefits of valuation uplift and merger possibilities.

Kraft wrote that the spin would "unlock valuation upside by forcing the market to value NBCU and Comcast separately, instead of assigning a lower cable multiple to the entire enterprise."

He did reduce his price target to $32 from $34, but the new target represents 30% upside from the current price. His target corresponds to an Ebitda multiple of five on Comcast's cable business and 9.5 on NBCUniversal, in line with Walt Disney.

NBCUniversal has some strong businesses, notably parks and movies, and more challenged ones such as NBC and the undersized Peacock streaming service. NBCUniversal completed a $7 billion expansion to its Universal theme park in Orlando last year in a challenge to Disney.

Wolfe Research analyst Peter Supino wrote that he thinks deals will occur before a spinoff occurs. The breakup "is a legitimately good idea that also strengthens Comcast's negotiating position with partners" who may not want to wait a year for the deal to happen plus another year-plus for the two companies to season in order to preserve favorable tax treatment on the transaction.

There were limited details released in the announcement. Comcast, for instance, didn't say how much the two companies will pay in dividends relative to the ample 5.6% current yield on Comcast stock.

Cavanagh said that management recognizes that dividends are a "core part of our capital-allocation framework" but that dividend details post-split will come later.

So why is Comcast stock so weak? Broadband Internet, the most important business inside Comcast, is suffering from intensifying competition and Comcast has had modest subscriber losses relative to a base of almost 29 million residential broadband subscribers.

The newest investor worry involves the threat from SpaceX's Starlink which plans to expand its satellite broadband offering once it starts positioning a new fleet of high-powered satellites later this year.

The deal outlook is also problematic. The most talked about combination, Comcast/Charter, is complicated by Charter's heavy debt of about $95 billion that may amount to a poison pill. Netflix, the most logical partner for NBCUniversal, was chastened by the negative investor reaction to its pursuit of Warner Bros. and may be loath to do a major deal. And the streaming leader probably doesn't want NBC. Add to that, potential antitrust issues that a deal for either Comcast or NBCUniversal might create.

These negatives explain why Comcast has barely budged on the news and trades so cheaply.

But the spinoff will create a leading media-and-entertainment company in NBCUniversal and a stand-alone broadband internet giant. Investors can buy Comcast's package of assets cheaply in its discounted stock.

Write to Andrew Bary at andrew.bary@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.