We’re heading into earnings season again, and that could spell more trouble for Comcast Corporation (NASDAQ:CMCSA). The market retreat over the past month has not been kind to the technology sector, and Comcast stock has lagged even that poor performance. The shares are trading near 52-week lows, but that doesn’t mean they can’t go lower.
Comcast is scheduled to release its quarterly earnings report ahead of the open on April 24. Wall Street is currently looking for a profit of 60 cents per share on revenue of $22.76 billion. However, these figures may matter very little where CMCSA stock is concerned.
Back in January, Comcast reported a fourth-quarter earnings that topped expectations. The company also lifted its quarterly dividend and boosted its share buyback program. Since then, Comcast stock is down roughly 28%.
Subscriber numbers are the real driver now for CMCSA. For the fourth-quarter, Comcast lost 33,000 cable subscribers, adding to the 134,000 lost in the third quarter. What’s more, the growth rate for high-speed internet subscribers (those subs that Comcast said would make up for dying video revenue) declined.
This trend has since continued as cordcutting picks up steam. According to a recent report from Moody’s, the video replacement rate for pay TV subscribers continued to fall through the end of last year. Comcast is no longer guaranteed to make up this lost revenue with high-speed internet subs.
More signs of cordcutting are a given for Comcast, but a continued decline in growth for high-speed internet subs could have a major bearish impact on CMCSA stock.
Click to Enlarge The one thing that Comcast stock has going for it is that the shares are near oversold levels. In other words, selling pressure on CMCSA has nearly exhausted itself and the shares could see a short-term bounce as a result. Still, there are plenty of technical indicators (like the broader market and the recent bearish cross of CMCSA’s 50-day and 200-day moving averages) that could stymie any attempt at a comeback rally.
On top of the weak price action and cracks in Comcast’s fundamentals, sentiment remains extremely bullish on CMCSA 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.
Furthermore, the 12-month price target for Comcast stock rests at $47.97 — representing a whopping premium of about 43% to CMCSA’s current trading range. As a result, the stock is at serious risk of both downgrades and price-target cuts.
Even Comcast stock options traders are extremely bullish on the stock. Currently, the May put/call open interest ratio rests at 0.17, with calls more than quintupling puts among front-month options.
Finally, May implieds are pricing in a potential post earnings move of about 5.4% for Comcast stock. This places the upper bound near $35, while the lower bound lies at $31.
2 Trades for Comcast Stock
Put Spread: Traders looking to bet on another post-earnings plunge for Comcast stock might want to consider a May $30/$32.50 bear put spread. At last check, this spread was offered at 72 cents, or $72 per pair of contracts.
Breakeven lies at $31.78, while a maximum profit of $1.78, or $178 per pair of contracts — a potential 150% return — is possible if Comcast stock closes at or below $30 when April options expire.
Call Sell: If betting directly against Comcast stock isn’t your style, you might consider entering a May $40 strike call sell position. Such a trade is especially useful if you already own Comcast stock, 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 $40.
At last check, this option was bid at 10 cents, or $10 per contract. A sold call allows you keep the premium as long as CMCSA stock closes below $40 at expiration.
On the downside, if Comcast stock rallies above $40 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.
