Analysts' Choice: Comcast Proves Giants Can Adapt

2/20/2017


  Recent Price
$77
  Dividend
$1.26
  Yield
1.6%
  P/E Ratio
22
  Shares (millions)
2,410
  Long-Term Debt As % Of Capital
49%
  52-Week Price Range
$76.87 - $56.59

It's not hard to make a bearish case for Comcast ($77; CMCSa).

More and more competitors are offering digital-video options, flooding into a market created by technological advancements that have changed the way we consume media. Government regulation is another issue. The Federal Communications Commission's Title II enforcement has stepped up regulation of the broadband industry to ensure "'net neutrality,"' while the FCC also planned to require large TV providers to make their content available through free software, eliminating the need for pricey set-top boxes.

However, we suggest you don't make that bear call because the media giant has shaken off those concerns. President Trump's freshly appointed FCC chief plans to reverse net neutrality rules and is likely to squash any efforts to ditch the set-top box. And despite concerns about cord-cutting, Comcast added 161,000 video customers in 2016, its strongest gain in a decade. To round out its traditional media business, the company also added 385,000 internet customers and 44,000 voice customers in the quarter.

In January, Comcast raised its dividend 15%, announced a 2-for-1 stock split, and beefed up its stock-repurchase program to $12 billion with plans for $5 billion in buybacks this year. The stock is a Buy and a Long-Term Buy.

Business developments

Customer relationships increased 1% in the December quarter, not bad considering recent history. However, the number understates the company's penetration. At the end of 2016, 70.1% of customers took two or more products, up from 69.8% a year earlier. The growth doesn't seem big, but for a company with massive fixed costs for infrastructure, small gains can lead to big leverage. For the year, customer relationships increased by 858,000, 29% more than the additions made in 2015.

Over the long haul, digital media is a real threat to the traditional pay-TV business. However, Comcast is adjusting better than many people expected, offering its own on-demand services and dipping a toe into alternative distribution methods. Perhaps the company's biggest hedge against a digital world is its massive library of programming. While cable-network subscriber levels fell in the December quarter, distribution revenue rose nearly 5% and content licensing jumped nearly 15%.

The consensus projects revenue growth of 4% this year, down from 7% in 2016. However, that decline is misleading, as the Olympics boosted growth last year; analysts expect a return to 7% sales growth in 2018. On the profit side, the consensus calls for per-share growth of just 7% this year, followed by 16% next year.

Conclusion

Comcast's quarter-to-quarter growth will always be somewhat lumpy, for reasons both predictable (Olympics and election-related advertising) and unpredictable (theme-park expansions and the varying success of feature films). But the company's ability to adapt gives us confidence that Comcast will deliver double-digit growth in long-term profits.

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
Dec '16
0.89
vs.
0.81
9%
71.32
-
60.04
21 - 18
Sep '16
0.92
vs.
0.80
14%
68.36
-
64.27
21 - 20
Jun '16
0.83
vs.
0.84
3%
65.42
-
59.62
20 - 18
Mar '16
0.84
vs.
0.79
5%
61.37
-
52.34
19 - 16
           
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2016
80.40
3.48
0.98
71.32
-
52.34
20 - 15
2015
74.51
3.25
0.90
64.99
-
50.01
20 - 15
2014
68.78
2.93
0.78
59.30
-
47.74
20 - 16
2013
64.66
2.47
0.60
52.09
-
37.21
21 - 15
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
78
60
66
87
66
26
63

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


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