Comcast Corporation Stock Is a Way Better Deal Than You Think

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A glance at the assets held by Comcast Corporation (NASDAQ:CMCSA) would show investors that Comcast does not appear, on the surface, to be all that different from The Walt Disney Company (NYSE:DIS). This brings to mind an interesting question: have investors been flocking to Disney stock when there may be a better deal to be had in Comcast stock?

cmcsa stock comcast stock

The Cable Networks segment operates the following: USA, MSNBC, E!, Syfy, CNBC, Bravo, NBC Sports, Golf Channel, Oxygen, Sprout, Esquire, Chiller, CNBC World, Universal HD and Cloo. None of these are blockbusters, ranging from 25 to 90 million subscribers, but they do offer reliable cash flow.

This segment accounts for 13% of revenues and 16% of operating income.  Disney’s cable networks are almost all blockbusters, however, with no channel accounting for less than 62 million subscribers and reaching 205 million internationally with Disney Channel.

The Broadcast Television segment operates NBC and Telemundo, representing 12% of revenues and 6% of operating income. Already, there are huge differences between the two companies. Disney’s cable and broadcast segments, while struggling, still account for over 40% of revenue and almost 50% of operating income.

That’s not necessarily a bad thing. It just means that Comcast stock relies less on these segments.

The Filmed Entertainment handles Universal Pictures, Illumination, Focus Features and DreamWorks Animation, as well as licenses stage plays. This is yet another huge difference from Disney. Certainly these assets provide some solid content, yet they lack the ongoing blockbuster franchise value of LucasFilm, Pixar and Marvel Studios. There is just no comparison in terms of the long-term value that those brands have to Disney.
Thus, it is unsurprising to find that Comcast stock is only driven by an 8% revenue contribution from this segment, and 3% of operating income. At Disney, it represents almost 14% of revenue and about 18% of operating income.

The theme parks segment operates Universal theme parks in Orlando, Hollywood and Osaka. This does very well for CMCSA, in providing 6% of revenue, but 9% of operating income because of its high margins.

Of course, it’s difficult to compete with Disneyland and Disneyworld, as well as cruise lines. That segment provides 30% of Disney’s revenue and about 21% of its operating income.

CMSCA Stock Is Not DIS Stock

Really, then, there’s very little similarity here. The truth is that CMCSA stock is really about cable communications. Disney does not have a segment that provides video, high-speed Internet, and voice services to residential and business customers.

What that means is that CMCSA stock has the pros of cable – tons of cash flow – but also the con, namely, tons of debt. Cable companies draw down tons of debt to establish the infrastructure, but then generate tons of cash flow from recurring monthly fees. This is where the comparison to Disney breaks down again, because it is nearly 60% of CMCSA stock revenues and 66% of its operating income.

The Bottom Line on CMSCA Stock

Investors could theoretically own both Comcast and Disney, thereby diversifying one’s exposure to entertainment assets, while also gobbling up a sizable cable TV business. It’s not entirely unreasonable. CMCSA stock trades at 8.38x Enterprise Value-to-EBITDA, and DIS trades at 10.1.

CMCSA has very reliable cash flow thanks to the cable business, generating almost $10 billion annually. As for a shot at Comcast stock forecast, I think that it’s business remains stable and reliable to the point that its 20% annualized returns should remain stable as well.

While DIS is struggling with ESPN, I expect that matter to be resolved in the next 18 months, possibly through a sale. I think there are worse paired trades you can have here. I don’t think CMCSA is a bad deal. In fact, Charter Communications, Inc. (NASDAQ:CHTR) trades at 10.3x EV-to-EBITDA and has vastly less (and less reliable) cash flow, while not making that much money.

Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He owns shares of DIS. He has 22 years’ experience in the stock market, and has written more than 1,600 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.

 


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