Analysts' Choice: Consistency Is King AT Comcast

1/11/2016


  Recent Price
$55
  Dividend
$1.00
  Yield
1.8%
  P/E Ratio
17
  Shares (millions)
2,502
  Long-Term Debt As % Of Capital
46%
  52-Week Price Range
$64.99 - $50.01

Comcast's ($55; CMCSa) exposure to the vulnerable cable business worries many investors. U.S. pay-TV companies shed 654,000 video subscribers in the first nine months of 2015, estimates Leichtman Research Group. Unfortunately, this trend for pay-TV providers could continue in coming years. About 77% of U.S. adults will subscribe to cable or satellite TV in 2018, down from 85% in 2014, predicts eMarketer.

But there's more to Comcast, a Focus List Buy and a Long-Term Buy, than its traditional cable business. The media giant's other ventures should help offset subscriber shrinkage at the pay-TV unit (29% of sales in the first nine months of 2015, up 3%). Comcast's high-speed internet business (17%, up 10%) is on pace to add more than a million net subscribers for the eighth straight year. The internet customer count surpassed video customers for the first time ever in the June quarter. Filmed entertainment (10%, up 52%), cable-business services (6%, up 21%), and theme parks (4%, up 23%) are also driving growth.

Comcast's internet business may face pressures of its own. The number of U.S. adults with broadband internet service has declined in the past two years, while more people are using smartphone-data plans for internet access. Wireless discounter T-Mobile US ($40; TMUS) offers a free streaming service, which could accelerate these trends. However, larger wireless rivals AT&T ($34; T) and Verizon Communications ($46; VZ) also operate broadband businesses, and seem reluctant to engage in cutthroat pricing. For its part, Comcast is considering a push into the wireless industry.

Comcast has navigated choppy waters before, consistently delivering growth in recessions and recoveries alike. Sales have risen every year since at least 1980. Per-share profits have increased in nine consecutive years, growing at an annualized rate of 31% during that period. Cash from operations has increased in 21 of the past 25 years. Part of that consistency stems from recurring revenue streams inherent in Comcast's subscription model.

Income investors have found a windfall in Comcast's steady growth — its dividend has risen more than 10% in each of the past nine years. Free cash flow surged 48% to $7.97 billion in the 12 months ended September. Rising operating costs (in the form of higher programming costs and increased investment in the cable unit and Olympics telecast) could constrain free-cash-flow growth next year. But Comcast devotes less than one-third of earnings to the dividend, allowing flexibility for additional, substantial hikes. The stock yields 1.8%.

Conclusion

At 17 times trailing earnings, the stock trades roughly in line with its five-year average. Shares trade at 15 times estimated 2016 earnings, below the median of 23 for S&P 1500 cable and satellite stocks.

Analysts expect Comcast to grow earnings per share 11% in 2016 on 5% higher revenue. Even the most pessimistic analyst profit estimate of $3.50 per share equates to 7% growth. Comcast shares trade at a reasonable 16 times this bearish estimate.

An annual report for Comcast Corp. is available at One 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 '15
0.80
vs.
0.73
11%
64.99
-
50.01
21 - 16
Jun '15
0.84
vs.
0.75
11%
61.64
-
56.05
20 - 18
Mar '15
0.79
vs.
0.68
3%
60.70
-
52.45
21 - 18
Dec '14
0.77
vs.
0.66
5%
59.30
-
49.33
21 - 17
           
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2014
68.78
2.93
0.90
59.30
-
47.74
20 - 16
2013
64.66
2.47
0.78
52.09
-
37.21
21 - 15
2012
62.57
2.28
0.60
38.22
-
24.28
17 - 11
2011
55.84
1.58
0.43
27.16
-
19.19
17 - 12
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
79
60
76
84
74
16
40

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


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