Analysts' Choice: Comcast Transmits Bright Outlook

8/8/2016


  Recent Price
$67
  Dividend
$1.10
  Yield
1.6%
  P/E Ratio
20
  Shares (millions)
2,446
  Long-Term Debt As % Of Capital
48%
  52-Week Price Range
$68.36 - $50.01

Comcast ($67; CMCSa) shares have surged 18% this year, outpacing the 6% advance for the S&P 500 Index. But Quadrix presents a fuzzy picture of the stock, earning an Overall rank of just 72 — lower than any other member of our Focus List.

Although the stock carries some legitimate concerns, we remain comfortable with Comcast as a Focus List Buy and Long-Term Buy for reasons explained below.

Cable business

The video business continues to face threats from streaming rivals Amazon Prime and Netflix ($93; NFLX). Disney ($96; DIS) has also taken steps toward streaming ESPN through online distributors.

Yet Comcast's net additions for video subscribers have improved in five consecutive quarters. It lost a net 4,000 video customers last quarter, its best June quarter in more than a decade. Average revenue per subscriber rose 3% to $148 in the first half of the year.

Even if the cable unit begins to falter, Comcast may well be the one to deliver the internet to many of the so-called cordcutters. Comcast added 220,000 internet customers last quarter, its strongest June-quarter growth in eight years. Management is also considering a push into wireless services.

Operating momentum

Recent growth looks pedestrian, reflected by its Momentum score of 43. Per-share profits slipped 1% in the June quarter on sales growth of just 3%. Operating cash flow crept 6% higher in the past 12 months.

Yet Comcast's consistency is far more impressive. The company has delivered 11 straight quarters of higher revenue, and cash from operations is up in seven of the past eight quarters. Per-share profits, revenue, and operating cash flow have advanced at an annualized clip of more than 10% in the past five years.

Valuation

At 20 times trailing earnings, the stock trades 13% above its five-year average P/E ratio. Comcast shares also look expensive relative to historical norms for price/sales and price/operating cash flow.

Yet the stock trades in line with the median for S&P 1500 cable and satellite stocks for all three metrics. It trades at 19 times estimated 2016 earnings, also matching industry norms.

Conclusion

Comcast's growth appears poised to accelerate in the second half of the year. Cable networks and broadcast-TV business figure to benefit from the U.S. presidential election and Rio Olympics. Comcast expects nightly ratings for the Summer Games to be three times higher than ABC, CBS, and Fox combined. Comcast reached its target for advertising revenue — 20% higher than in London 2012 — three weeks before the Olympics began. Comcast says it usually meets its budget within days of the opening.

Per-share profits are projected to climb 15% in each of the final two quarters of 2016. Sales are expected to surge 13% this quarter, followed by 7% growth in the December quarter. 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
Jun '16
0.83
vs.
0.84
3%
68.36
-
59.62
21 - 18
Mar '16
0.84
vs.
0.79
5%
62.91
-
54.38
19 - 17
Dec '15
0.81
vs.
0.77
9%
63.26
-
52.34
20 - 16
Sep '15
0.80
vs.
0.73
11%
63.38
-
50.01
20 - 16
           
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2015
74.51
3.25
1.00
64.99
-
50.01
20 - 15
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
1.93
0.60
38.22
-
24.28
20 - 13
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
72
43
62
83
70
45
65

   * Earnings exclude special items.
   † Quadrix scores are percentile ranks, with 100 the best.
   NA Not available.


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