On Jan. 24, Comcast Corporation (NASDAQ:CMCSA) beat analysts’ earnings per share and revenue expectations. The result? Like seemingly every other stock in the market, CMCSA hit new 52-week highs.
So, what do we make of Comcast stock?
Like many of its peers, it’s struggling with video subscribers due to cord-cutting. However, it may not be as bad as some investors had been expecting. Analysts were forecasting for a year-over-year loss of 48,000 video subs this quarter. Final tallies show a net loss of “only” 33,000. On a brighter note, Comcast added 350,000 high-speed internet subscribers versus estimates calling for just 309,000.
In addition, CMCSA boosted its dividend by 21% and plans to buy back $5 billion worth of stock in 2018, just like it did in 2017. Some may have been expecting a larger buyback given tax reform, but there’s nothing wrong with keeping cash ready for some M&A or a rainy day. The content industry has been an active arena, particularly after Walt Disney Co (NYSE:DIS) made the move to buy Twenty-First Century Fox Inc. (NASDAQ:FOXA, NASDAQ:FOX).
Could Comcast buy a company like Lions Gate Entertainment Corp. (NYSE:LGF.A, NYSE:LGF.B)? It’s possible, but I wouldn’t factor it into our evaluation quite yet.
Evaluation of Comcast Stock
Aside from a big bump in the dividend and mixed sub numbers, what else do we see in Comcast stock?
Well, first there’s NBCUniversal. The unit churned out record profitability in film and had record attendance at its theme parks. Further, NBC has both the Super Bowl and Winter Olympics to look forward to this quarter. In short, the good times should keep on rolling.
Taking a wider view of the company, analysts are looking for earnings of almost $2.50 per share this year. If it comes to fruition, that represents roughly 20% growth from 2017’s earnings of $2.06 per share. Sales are forecast to grow 5.9% in that period, but CMCSA stock investors aren’t in the name for sales growth.
Sporting a market cap of almost $200 billion, buyers want this company to churn out earnings growth. In that sense, 20% growth is very good. A portion of that growth is due to tax reform. Management said it expects its effective tax rate to fall from ~36% to ~25%. That 30% decline will surely pad the bottom line in 2018. For 2019, analysts are looking for earnings growth of 11%. Not as good as this year, but still far from disappointing.
So, what are we paying for this growth? CMCSA stock trades at about 17 times its 2018 earnings. That’s not absurd when you consider its 1.8% dividend yield and 20% earnings growth. I consider the valuation good, but not great.
Trading CMCSA Stock
The charts favor the bulls when it comes to trading CMCSA stock… well, at least that’s what the trend has favored.
Click to Enlarge
With CMCSA stock trading above $42, it’s clearly through a big level of prior resistance. Short-term investors looking for more upside can buy now and use a close below this level as their stop-loss.
However, the strategy is different for long-term investors.
Long-term investors can consider buying an initial position near current levels. Should the broader market correct or should CMCSA fall, look to add to the position at trend-line support (in purple). Unless the correction only takes a few days, this level of support will likely come into play in the upper $30s. Since the beginning of 2016, this trend-line has been support, making it a high-probability buy.
One more note: Conservative investors can wait until a correction materializes down to trend-line support. The stock will yield about 2% at that point and the valuation will be more attractive. At the same time, its current positive catalysts will still be in place, just with a better risk-reward profile.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell had a position in DIS.
