Comcast Targets The High End


  Recent Price


  P/E Ratio
  Shares (millions)
  Long-Term Debt as % of Capital
  52-Week Price Range
$19.52 - $13.54

During the 2009 transition to digital broadcasts, some pay-TV companies pitched aggressive promotions to lure new customers. Comcast ($18; CMCSa) resisted the urge, instead choosing to target more affluent customers with its premium services. This strategy limited subscription growth but left Comcast with a customer base more capable of bearing rate hikes.

One year later, total U.S. pay-TV subscriptions dipped in the June quarter — believed to be the industry’s first decline ever. High unemployment and online alternatives have been widely blamed. But consider a possible third culprit: new customers letting subscriptions lapse when the lavish promotions ended. While the rest of the industry struggled to keep customers in the June quarter, Comcast added 477,000 subscribers, offsetting the loss of basic cable subscribers with new digital-TV, Internet, and phone accounts. Average revenue per user rose 8% to $128.

Comcast’s revenue climbed at an annualized rate of 12% over the last five years. The company has generated higher free cash flow in each of the past four calendar years and is on pace to extend the trend this year. Comcast, yielding 2.1%, is a Focus List Buy and a Long-Term Buy.

NBC Universal: deal or no deal

Pay-TV distributors want to provide more of their own programming. Comcast leaped forward on that path in November, announcing plans to buy a 51% stake in NBC Universal from General Electric ($15; GE) for $6.5 billion in cash and $7.25 billion of assets.

The European Union has approved the deal, but its real hurdle lies in the U.S., where plenty of critics await. Comcast professes confidence it can complete the deal by year-end.

Big media mergers have a dismal track record, and some fear Comcast may be reaching beyond its expertise. But the acquisition would shelter Comcast from some of the escalating costs related to programming and retransmission fees. The deal was also negotiated near the nadir of television advertising, which is beginning to see a resurgence.


Americans cut back on a lot of services in the downturn. But revenue from pay-TV, a $69.8 billion market in the U.S., has proved fairly resilient, as cable bills climb faster than consumer prices. Many customers view cable as a cheap form of entertainment.

One area of concern is online TV. While Comcast focuses on the high-end customer and raises its prices, Apple TV, video-streaming site, and other rivals are making more programs available on the Internet. Whether this will eventually cut into Comcast’s growth — or whether Comcast’s online efforts will keep its own customers loyal — is uncertain.

Comcast will have trouble growing per-share profits in the second half of 2010, as the consensus projects a 6% decline during that period. However, the company has topped consensus estimates in the last four quarters.

At 14 times trailing earnings, shares trade 28% below the three-year average. The stock also trades below its three- and five-year averages relative to sales, book value, and operating cash flow. An annual report for Comcast Corp. is available at One Comcast Center, Philadelphia, PA 19103; 866-281-2100;




      Price Range

P/E Ratio

Jun '10 $0.33 vs. $0.33 + 6% $20.56 -


16 - 13
Mar '10 0.31 vs. 0.27 + 4% 18.94 - 15.10 15 - 12
Dec '09 0.33 vs. 0.27 + 3% 17.88 - 13.95 15 - 12
Sep '09 0.33 vs.


+ 3% 17.68 - 13.04 16 - 12



52-Week Price Range

P/E Ratio

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
2006 $24.97 $0.47 $0.00 28.94
16.90 62 - 36
————————————————— Quadrix Scores † —————————————————
Overall Momen-
Value Quality Financial
84 45 84 79 68 41 63

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

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