Below, we discuss some key developments in the portfolio companies we are watching today:
Shares are trading higher today as the company presented at a sell-side research investor conference. CFO Mike Cavanagh spoke about a strong local advertising market (normalized versus the political environment last year), on which NBC has capitalized via its owned-and-operated stations. In addition, while nationally lower ratings have been a topic of concern of late, Cavanagh noted that CMCSA is feeling "very good about national advertising for NBC" as it has been able to command higher rates.
Interestingly, although we had not expected the company to delve too deep into prospects for its wireless product (Xfinity Mobile), which was only soft-launched last week, Cavanagh noted that Comcast expects the product will result in lower churn in the company's core product set. This is essential as retention is a key input in driving a higher lifetime value for a company's entire customer base. Comcast's management recognized the importance of retention when it decided to invest heavily into its X1 platform, which is widely considered the best video product, creating a seamless customer experience and even linking Netflix (NFLX) (and YouTube later this year). We appreciate management's focused investments into customer experience. Importantly, these prior investments are beginning to flow through the entire business, allowing for a better expense outlook moving forward and helping to offset higher programming costs.
Lastly, as for film, Cavanagh noted that 2017 is shaping up to be strong (and recall that the first quarter was Universal's best first quarter ever). A strong slate thus far of Get Out, Fast 8 and 50 Shades Darker will be supported by releases later this year of Despicable Me 3, Pitch Perfect 3 and The Mummy. Comcast's recent acquisition of DreamWorks only further bolsters the long-term prospects of the company's film division, which management can also later parlay into additional attractions at its theme parks.
Shares of both companies are trading higher today, in line with our decisions to upgrade both stocks to One (from Two) last week after earnings reports from each company were met with disappointment in the market. Although we were restricted last week on both names, we viewed the pullbacks as too extreme, thereby offering buying opportunities in these high-quality companies. We continue to be positive on the long-term prospects of each company and will look for opportunities to buy back shares in both positions, which we had trimmed in recent months in order to make room for further purchases down the line. You can read our weekly recap where we discuss last week's upgrades here.
DHR is benefiting today from CEO Tom Joyce's comments at the EPG conference, where he highlighted continued traction at Pall resulting in $350 million in cost savings by year five versus the initial $300 million expectation. Joyce noted that the company found more low-hanging fruit than initially expected -- we are not surprised by this given DHR's history of strong operating performance via its DBS (Danaher Business System) approach (watch this YouTube video for more on DBS). The company's consistency and transformation levers in the coming years fueled our decision to purchase additional shares on Friday when the stock was underperforming the broader market. We continue to view shares as attractive and believe DHR will benefit from the growing nature of the youth within its portfolio (50% of revenues acquired since 2011) and improvements in some of its challenged divisions, such as dental, which has seen weakness across the market rather than due to company-specific trends.
CFO Ruth Porat attended a lunch hosted by the Economic Club of New York today and her commentary has reinforced her positive impact on the company. We have spoken about Porat's influence in past notes, such as this one. Her willingness to embody the company's long-term vision while also employing a controlled approach toward expenses and operating structure has allowed the stock to break out over the past couple of years. At the lunch today, she specifically spoke about investments in three key areas: 1) the core ad business, where Alphabet can leverage its advancements in artificial intelligence and machine learning (best in class); 2) the company's biggest bets within core GOOGL, including cloud, hardware and YouTube; and 3) other bets. Investors appreciate the company's ability to balance core investments with ones on moonshot opportunities for the long term.
Western Digital (WDC)
Shares are trading higher today as well, rebounding from last week's extreme selloff. Today, the company received another vote of confidence from sell-side analysts as Cowen highlighted WDC as the most strategic buyer for Toshiba's memory business. This follows news last week that WDC was seeking arbitration against Toshiba, who WDC believes cannot pursue a sale of the memory business without WDC's consent. The back-and-forth between both companies surrounding the bidding process has been an overhang to the stock in recent weeks and we would not be surprised to see shares continue to trade in somewhat volatile fashion as news reports continue to cloud the story. We trimmed much of the position in anticipation of this, but we continue to see upside should WDC emerge victorious in the Toshiba memory bid. We believe our current weighting appropriately accounts for the risk/reward, but could be enticed to buy additional shares should broader weakness irrationally drive the stock lower.