Comcast Content With New Content

8/15/2011


  Recent Price
$21
  Dividend
$0.45
  Yield
2.2%
  P/E Ratio
14
  Shares (millions)
2,789
  Long-Term Debt as % of Capital
38%
  52-Week Price Range
$27.16 - $16.76

Comcast ($21; CMCSa), the largest U.S. cable-TV operator, has 49.1 million video, Internet, and phone customers. But it still has no presence in 11 states, proof that even a giant of Comcast's scale can only build out its infrastructure so far. Video content, however, can overcome that limitation, pushing Comcast into otherwise unreachable households.

Since 1986, Comcast has dabbled in content, first as a founding investor in QVC, then over time compiling a portfolio of cable networks. And in January, Comcast purchased a controlling stake in NBC Universal.

Comcast operates in a somewhat defensive industry, typified by recurring and fairly stable revenue streams. Pay TV was one of few bright spots during the downturn as Americans chose to slash other expenses. Moreover, consumers seem willing to pay more for higher tiers of service, and these new products help offset dwindling subscriber growth. Comcast, yielding 2.2%, is a Long-Term Buy.

Midyear progress report

Six months after the NBC deal, management appears upbeat. Comcast claims content has gained value since the terms of the deal were first drawn in late 2009, and retransmission fees continue to climb. The company's cable channels aired 58 original series in the June quarter, including 12 new shows Comcast has promoted across multiple platforms. Despite the fragile state of the U.S. economy, Comcast says it hasn't seen any slowdown in the advertising market.

Comcast's cable unit grew sales 6% in the first half of 2011 despite a 1% decline in video customers. In the first half of 2011, monthly average revenue per video customer rose 10% to $136.

The cable unit grew cash provided by operations 7% to $7.64 billion in the first half of 2011. NBC Universal generated $1.50 billion in operating cash flow, up 5%. Comcast is hoarding cash generated by NBC Universal to buy the remaining stake should General Electric ($16; GE) elect to exit the business in 2014. Cash from the cable unit will help fund the dividend, raised 19% earlier this year, and stock buybacks, which have chipped 12% off the share count in the past five years.

Some worry that the nascent video-streaming services offered by Amazon.com ($205; AMZN), Google ($573; GOOG), Apple ($374; AAPL), and Netflix ($238; NFLX) could challenge the traditional pay-TV model. A pair of surveys estimated that 10% of U.S. households could cancel their cable or satellite-TV services due to the popularity of such services. But streaming services offer minimal sports coverage and live TV, so they may end up supplementing — rather than supplanting — cable TV.

Conclusion

In the past year, Comcast shares have advanced 11%, double the gain of the S&P 500 Index. But at 14 times trailing earnings, Comcast trades 45% below its five-year average. Should the stock merely maintain its current P/E and Comcast meet the 2011 earnings consensus of $1.60 per share, shares stand to rise another 10% by early 2012. An annual report for Comcast Corp. is available at One Comcast Center, Philadelphia, PA 19103; 866-281-210; www.comcast.com.

COMCAST
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Jun '11
0.42
vs.
0.33
+ 50%
27.16
-
23.32
20 - 17
Mar '11
0.34
vs.
0.31
+ 32%
25.91
-
22.05
20 - 17
Dec '10
0.36
vs.
0.33
+ 7%
22.40
-
16.91
17 - 13
Sep '10
0.31
vs.
0.33
+ 7%
19.80
-
16.76
15 - 13
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2010
37.94
1.29
0.38
22.40
-
15.10
17 - 12
2009
35.76
1.26
0.27
18.10
-
11.10
14 - 9
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
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
94
81
81
86
56
56
52

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


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