Video Losses Don't Shut Comcast Off

11/25/2013


  Recent Price
$47
  Dividend
$0.78
  Yield
1.6%
  P/E Ratio
20
  Shares (millions)
2,658
  Long-Term Debt as % of Capital
46%
  52-Week Price Range
$48.90 - $35.90

The bearish case for Comcast ($47; CMCSa) is simple.

As more Americans cut the cable cord, Comcast's market is shrinking, while satellite providers, telephone companies, and internet rivals offer an increasing variety of services. The obvious argument has some validity, but Comcast has responded aggressively to changes in its business environment and remains more than competitive.

Comcast grew sales 9% and per-share profits 10% over the last 12 months, topping the profit consensus in the last three quarters. The consensus projects per-share-profit growth of 31% in the December quarter and 15% in 2014, with estimates for both periods up over the last 30 days.

Comcast, a longtime Long-Term Buy added to the Buy List in the Nov. 11 issue, yields 1.6%.

New growth channels

In an effort to satisfy consumers' demands to access whatever they want, whenever and wherever they want, Comcast earlier this month began allowing users of mobile devices to access 35 live TV channels, with more to come. Available channels include CNN, Fox News, ESPN, and the Disney Channel. Given Nielsen's plans to include mobile viewers in its ubiquitous ratings starting next fall, Comcast's timing makes sense.

Last month, Comcast announced a deal to expand the number of CBS ($59; CBS) shows available via its Xfinity online streaming video service, beefing up a content portfolio that includes Discovery, Disney, and Comedy Central shows. We expect Comcast to pursue more content deals.

Comcast has agreed to provide live TV to Twitter ($42; TWTR) users starting this month and plans to begin selling digital movies through its cable boxes and website by the end of 2013. Subscribers could gain access to movies several weeks ahead of their release on DVD.

Business breakdown

In the 12 months ended September, Comcast added 709,000 customers for telephone service and 1.26 million for broadband internet, offsetting the loss of 355,000 video customers. Comcast hopes expanded Xfinity offerings will stem the tide of video losses, but the company has not ruled out changes in its business model — licensing its X1 internet-connected set-top box or selling subscription video to viewers rather than trying to make them full-fledged cable customers.

Sales fell 2% in the September quarter, as the cable communications unit (64% of revenue in the first nine months of the year) delivered 5% growth while NBCUniversal (36% of revenue) posted a 14% sales decline. However, excluding sales generated by the Summer Olympics last year, NBCUniversal's revenue rose 4%.

Conclusion

Concerns about competitors and new technology eroding Comcast's margins or stunting growth are legitimate. But the company's willingness to embrace new revenue streams offers some confidence in its ability to keep channeling growth. As of the end of September, 56% of video customers paid extra for advanced services.

You can obtain an annual report for Comcast Corp. at 1 Comcast Center, Philadelphia, PA 19103, (215) 286-1700, www.comcast.com.

COMCAST
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Sep '13
0.65
vs.
0.46
-2%
46.33
-
40.26
22 - 19
Jun '13
0.65
vs.
0.50
7%
43.74
-
38.75
22 - 19
Mar '13
0.51
vs.
0.45
3%
42.01
-
37.21
22 - 19
Dec '12
0.52
vs.
0.47
6%
38.22
-
34.94
20 - 19
           
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2012
62.57
1.93
0.60
38.22
-
24.28
20 - 13
2011
55.84
1.58
0.43
27.16
-
19.19
17 - 12
2010
37.94
1.31
0.38
22.40
-
15.10
17 - 12
2009
35.76
1.11
0.27
18.10
-
11.10
16 - 10
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
93
67
71
90
66
90
55

   * Earnings exclude special items.
   † Quadrix® scores are percentile ranks, with 100 the best.


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