Comcast Has Plenty of Running Room Ahead

by Jonathan Berr | February 16, 2012 10:44 am

Shares of Comcast (NASDAQ:CMCSA[1]) jumped 4.6% on Wednesday after the country’s largest cable company reported better-than-expected earnings, boosted its dividend by 44% and announced a $6.5 billion share buyback. Not bad — and the stock has plenty of room left to run.

Comcast closed yesterday at $28.52, still some 9% under the average one-year target of Wall Street analysts of $31.31. Its price-earnings ratio is 19, well under its five-year high of 22, according to Reuters[2]. Another reason to own this stock: Wall Street has underestimated the Philadelphia-based company for years, a situation that Comcast can partly blame itself for.

Comcast CEO Brian Roberts is the least flashy media mogul ever, especially compared with the likes of News Corp’s (NYSE: NWS[3]) Rupert Murdoch and Viacom‘s (NYSE:VIA[4]) Sumner Redstone. But he certainly thinks big. After his hostile bid for Walt Disney (NYSE:DIS[5]), he engineered last year’s mammoth takeover of NBC Universal from General Electric (NYSE:GE[6]). That acquisition gave Comcast a good theme parks and cable business along with a mediocre TV network.

During the fourth quarter, revenue at NBC ‘s Cable Networks [7] rose 5.3% to $2.2 billion. Filmed Entertainment sales, which fluctuate wildly, fell 1.8% to $1.29 billion. Theme Parks rose 4% to $498 million. The NBC network fell 3.7 % to $1.84 billion, but it should benefit from the coming Olympics and presidential election this year.

Still, NBC TV isn’t Comcast’s only weakness.

For years, it customer service was legendary for its awfulness. Remember the Comcast Must Die blog[8]? Service remains a weakness, but the company can take some comfort in knowing that its JD Power[9] ratings are about average for the industry, which isn’t saying much. Though Verizon‘s (NYSE:VZ[10]) FioS, Dish Network (NASDAQ:DISH[11]) and AT&T (NYSE:T[12]) are all higher rated than Comcast’s Xfinity service, none is even close to Comcast’s customer count.

Dish Network, the third-largest pay-TV service[13], has about 13.9 million customers. AT&T had 3.8 million U-Verse TV subscribers[14] at last count. Verizon reported having 4.2 million FiOS subscribers[15] at the end of the fourth quarter. In contrast, Comcast had 22.3 million video customers, down 135,000 from a year earlier, and 49.8 million video, high-speed Internet and voice customers, dwarfing the 3.5 million FioS “triple-play” customers.

While Comcast lost 17,000 video customers in the fourth quarter, that’s a huge improvement over the 135,000 subscribers it bled during the same quarter in 2010. The company lessened cable losses in 2011 by nearly 40% over 2010. Moreover, it also added more than 1 million high-speed Internet customers.

One way that Comcast keeps customers from bolting is through its 13 regional sports networks. For instance, most Philadelphia Phillies baseball games[16] can be seen only on Comcast Sports Network Philadelphia (CSN Philadelphia). The channel, which also shows the National Hockey League’s Flyers and National Basketball Association’s 76ers, isn’t available on satellite TV. A Comcast spokesman said the company, which owns the Flyers, is in talks with satellite providers about offering CSN Philadelphia. Satellite providers do offer Comcast sports networks in other parts of the country.

Comcast continues to defy the skeptics and makes a ton of money. Free cash flow surged 32.3% to $4.91 billion in the fourth quarter. Investors who have underestimated the company in the past do so now at their peril.

As of this writing, Jonathan Berr did not hold a position in any securities mentioned here.

Source URL: https://investorplace.com/2012/02/comcast-has-plenty-of-running-room-ahead/

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