Tune In Comcast's Growth Channel

6/1/2009


  Recent Price
$15
  Dividend
$0.27
  Yield

1.8%

  P/E Ratio
15
  Shares (millions)
2,890
  Long-Term Debt as % of Capital
42%
  52-Week Price Range
$22.52 - $10.33

Comcast ($15; CMCSA) expects growth in revenue, operating cash flow, and free cash flow this year.

While the recession will force some basic subscribers to cancel their cable television, Comcast also expects to gain market share in data and voice.  Wall Street projects per-share profits will rise 19% this year and at an 11% annualized rate over the next five years.

The 2002 acquisition of AT&T’s ($25; T) cable systems made Comcast the largest cable operator in the country. Going forward, the cable division should benefit from higher demand for advanced video services, annual rate increases, and a larger base of data and phone subscribers. Comcast, with solid operating momentum, an attractive valuation, and rising earnings estimates, is a Buy and a Long-Term Buy.

Business breakdown
Comcast operates two primary segments: cable (95% of sales in the past 12 months) and programming (4%). The programming segment includes cable networks E! Entertainment Television, The Golf Channel, and Versus, which is broadcasting some of the National Hockey League playoffs this spring.

Within the cable unit, key markets include video (54% of cable sales), high-speed Internet (21%), and voice (8%). Increasingly important to Comcast are its bundled services for phone, cable television, and broadband Internet. The “triple play” package accounted for 23% of the sales base at the end of 2008, up from 16% at the end of 2007.

With revenue up 40% in the past 12 months, voice is Comcast’s fastest-growing business. Since launching voice just over three years ago, Comcast has added 6.5 million customers and captured about 14% of the homes its network passes.

By differentiating its product through special services, Comcast has sidestepped some of the price competition squeezing rivals’ profits. Comcast subscribers can watch thousands of on-demand movies and television shows, some for free, others for a fee. In February, Comcast averaged 325 million video-on-demand views per month, up 8% from September.

Comcast views television and the Internet as complementary products rather than competitors. On average, Comcast charges $42 a month for its Internet packages, higher than competitors’ rates, yet continues to take market share. Speed matters, and Comcast plans to launch Docsis 3.0 in 65% of its markets this year. The service will offer data transfers up to four times faster than current speeds, opening up new media possibilities for the Web. Comcast is also developing video-on-demand services for the Internet.

In May, Comcast agreed to a 10-year deal with the NFL Network, ending a protracted pricing dispute. The deal will cost Comcast $0.40 to $0.45 per subscriber per month, below the NFL’s previous offering price of $0.70. Comcast’s previous five-year contract with the network lapsed May 1.

Conclusion
Free cash flow has surged 45% in the past 12 months, while operating cash flow is up 15%. The stock trades at a modest four times operating cash flow, less than half the three-year average. An annual report for Comcast Corp. is available at One Comcast Center, Philadelphia, PA 19103; 866-281-2100;
www.comcast.com.

 

COMCAST
Quarter

    Per-Share
     Earnings*

Sales
Change

      Quarterly
      Price Range

P/E Ratio
Range

Mar '09 $0.27 vs. $0.19 + 5% $18.10 -

$11.10

20 - 12
Dec '08 0.27 vs. 0.20 + 9% 19.62 - 12.50 23 - 15
Sep '08 0.24 vs. 0.18 + 10% 22.54 - 9.20 29 - 12
Jun '08 0.21 vs.

0.19

+ 11% 22.86 - 18.45 30 - 24
           
Year
(Dec.)

Sales
 (Bil.)

Per-Share
Earnings*
Per-Share
Dividend

52-Week Price Range

P/E Ratio
Range

2008 $34.26 $0.91 $0.19 $22.86
-
$9.20 25 - 10
2007 $30.90 $0.74 $0.00 30.18
-
17.37 41 - 23
2006 $24.97 $0.47 $0.00 28.94
-
16.90 62 - 36
2005 $22.26 $0.33 $0.00 23.00
-
17.20 70 - 52
             
————————————————— Quadrix Scores † —————————————————
Overall Momen-
tum
Value Quality Financial
Strength
Earnings
Estimates
Performance
93 86 83 85 64 83 38

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


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