This morning, Comcast Corporation (NASDAQ:CMCSA) released what should have been an extremely well-received quarterly earnings report. Not only did the company beat expectations, it also boosted its dividend and announced an increased stock buyback plan. And yet, Comcast stock is struggling to gain ground on the news.
We’ll get to the reason for that in a moment, but first, a recap. Comcast reported a fourth-quarter profit of 49 cents per share on revenue of $21.92 billion. The results were above expectations for earnings of 47 cents and revenue of $21.82 cents. Comcast also boosted its quarterly dividend by 21% to 19 per share and said it would buy back at least $5.0 billion in stock this year.
However, subscriber numbers continued to fall. Comcast lost 33,000 video subscribers in Q4, adding to the 134,000 lost in the previous quarter. Furthermore, CMCSA added just 350,000 high-speed internet subscribers, down from 385,000 in the same quarter last year.
So, while Comcast is making up some of its lost video subscriber revenue through internet subscription growth, even those numbers are slowing. The question now is, how long can Comcast continue to offset lost video revenue with internet subscriptions?
If the reaction to this morning’s report is any indication, Comcast stock investors are beginning to worry. CMCSA rallied hard following the approval of the Republican tax plan at the end of 2017. Now, with the plan finally in place, profit-taking is sure to begin.
Click to Enlarge CMCSA headed into earnings on the verge of overbought territory, with its 14-day RSI just shy of 70. The shares were also hovering just below technical resistance in the $43 range. Finally, Comcast stock’s rally pushed the shares well beyond trendline support, leaving plenty of downside risk over the short term.
On top of the short-term impact to price action, sentiment is extremely bullish on Comcast stock. For instance, Thomson/First call reports that 30 of the 31 analysts following the shares rate them a “buy” or better. That lone holdout maintains a “hold” rating.
With video subscribers continuing to fall, and growth slowing in high-speed internet subscriptions, Comcast stock is at risk of being downgraded.
Even Comcast options traders are overly bullish on the stock. Currently, the February put/call open interest ratio rests at 0.43, with calls more than doubling puts among front-month options.
Finally, February implieds are pricing in a potential post-earnings move of about 4.3% for Comcast stock. This places the upper bound near $44.50, while the lower bound lies at $40.50.
2 Trades for Comcast Stock
Put Spread: Traders looking to bet on a decline for Comcast stock in the wake of today’s earnings report might want to consider a Feb $41.50/$42 bear put spread. At last check, this spread was offered at 28 cents, or $28 per pair of contracts. Breakeven lies at $41.72, while a maximum profit of 72 cents, or $72 per pair of contracts, is possible if Comcast stock closes at or below $41.50 when February options expire.
Call Sell: If betting directly against Comcast stock isn’t your style, you might consider entering a February $46 strike call sell position. Such a trade is especially useful if you already own CMCSA, as it allows you to offset some of your portfolio losses in the event of a selloff, but also allows you exposure to any upside up until the stock trades at or above $46.
At last check, this option was bid at 16 cents, or $16 per contract. A sold call allows you keep the premium as long as CMCSA stock closes below $46 at expiration. On the downside, if UAL rallies above $46 prior to expiration, you could be forced to provide 100 shares at current market value for each call sold, which could be quite costly if you do not have enough stock on hand to cover the call.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
