Welcome to the Stock of the Day.
Cable giant Comcast (CMCSA) just reported surprisingly strong sales this morning. With CMCSA shares rising on the news, is now a good time to pick up this “triple play” (earnings, dividends and stock buybacks) stock?
Find out now.
Company Profile
Comcast as you probably know, is a huge player in media, entertainment and communications. It is perhaps best known for Comcast Cable, which beats out Time Warner Cable (TWC) as the largest cable operator in the U.S.
On top of this, the company is known for its “Triple Play” package, which also offers voice and high-speed internet services for residential and business customers. What many don’t realize is that Comcast also has a hand in the networks that it includes in its cable service, with full ownership of NBCUniversal and significant holdings in E! Entertainment, Style Network and G4, among others.
Earnings Buzz
In the fourth quarter, Comcast added 43,000 video subscribers, the first such quarterly gain in six and a half years. This, plus robust growth in its high-speed internet business, brought in a 649,000 net additions to Comcast’s subscriber base, a 29% increase over Q4 2012.
So revenue rose 6% year-on-year to $16.93 billion, topping the $16.65 billion consensus estimate.
Meanwhile, net income climbed 26% to $1.91 billion, or 72 cents per share. Excluding special items, adjusted earnings were 66 cents per share, missing the 68 cents per share consensus estimate by 3%. While earnings came up short, CMCSA shares rose after the report.
Shareholder Value
One reason is that Comcast has been aggressively buying its stock back and shows no signs of slowing down. In 2013 the company repurchased $500 million of its stock. And today the company increased its ongoing stock buyback program to $7.5 billion–of which Comcast expects to spend $3 billion in 2014 alone.
Last year, Comcast also returned $510 million to shareholders in the form of dividends. Looking ahead, Comcast is increasing its dividend by 15% to an annual payout of 90 cents per share. For its next dividend, shareholders of record on April 2 will receive 22.5 cents per share on April 23. The stock currently yields over 1.7%, making CMCSA one of the highest yielding stocks in the industry.
Current Ratings
Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. For much of the past year, CMCSA remained solidly in buy territory thanks to solid fundamentals (B-rated Fundamental Grade).
However, in August institutional buying pressure deteriorated for this stock, indicating that the risk-to-return ratio for CMCSA was slipping. So I was compelled to downgrade it to a C-rated hold. Even so, I like the company’s growth prospects, its hefty share repurchase program and that it is aggressively working to increase its subscriber base.
I need to see buying pressure improve before I upgrade it again to a buy, but I’ll be taking a close look at the latest data over the weekend to see if it’s time to revise this recommendation.
Bottom Line: As of this posting I consider CMCSA a C-rated Hold, but this rating could very well improve once the latest earnings results are pulled into Portfolio Grader.
Would you like to check the fundamentals backing up one of your stocks? For more stock grades, please visit my Portfolio Grader website!
