Back in February, I urged readers to “ignore the haters” and buy Comcast (NASDAQ:CMCSA) stock because of its “multiple positive catalysts.” It turned out to be the correct call since CMSCA stock gain about 20% since my original article appeared.
I am sticking by my call.
CMCSA stock, which is trading at a 9% discount to analysts’ average 52-week price target of $47.23, is still a compelling value for one reason: growth in its broadband business is compensating for the loss of video subscribers.
Video Losses Are Manageable
To be sure, the continued loss of TV customers isn’t an optimal situation but it isn’t a disaster, either. During its latest quarter, CMCSA gained 375,000 high-speed internet customers while it lost 121,000 video customers. In fact, CMCSA’s opaquely named Cable Communications business recently reported a solid quarter thanks to that high-speed internet business which has better margins than traditional Pay TV. Revenue at the division rose 4.2% to $14.3 billion while EBITDA surged 9.8% to $5.7 billion.
As I’ve said before, videos can’t stream themselves and even the most passionate of CMCSA haters have difficulty entirely cutting the cord with the company, mainly because of a lack of competition in the broadband market.
Customer Retention Hits New High
At the end of the quarter, CMCSA had more than 25 million residential broadband customers and said its retention “is the best on record.” According to Comcast, the average “broadband home” uses more than 200 gigabytes, a jump of 34% on a year-over-year basis, as well as an increase from the fourth quarter.
CMCSA has time to “figure out” how to respond to 5G since the new technology doesn’t pose an immediate threat to the company, according to Wall Street analysts and senior company executives, including CFO Michael J. Cavanagh. Over the long-term, of course, it may be a different story as some have speculated that the technology may one day replace cable TV.
Meanwhile, political considerations may affect the rollout of 5G since China’s Huawei, the world’s largest maker of telecom equipment, is in hot water with the Trump administration over fears of spying. According to Virginia Tech’s Jeffrey Reed, Huawei’s equipment is much cheaper than its European rivals and the company hasn’t had any U.S. competitors for nearly two decades.
Solid Results At Sky, NBCUniversal, Theme Parks
In the coming months, I expect both Sky and NBCUniversal to continue to impress and for the Theme Park business to pick up.
The U.K. Pay TV business added more than 100,000 net new customers in the latest quarter. The company recently announced plans to combine some European TV channels and global content distribution businesses at both NBC and Sky. CMCSA also may launch a global NBC Sky News channel later this year. Both businesses will reap the benefits of these moves.
Theme Parks attendance should rise in the second quarter with a new Harry Potter-themed roller coaster at the company’s Endless Summer Resort in Orlando as well as its new Jurassic World attraction in Hollywood. That includes something called Hagrid’s Magical Creatures Motorbike Adventure, which opens about two months ahead of Disney‘s (NYSE:DIS) debut of what’s been described as its most ambitious expansion in two decades, Star Wars: Galaxy’s Edge.
It’s looking like the only roller coasters are in Comcast’s theme parks. For long-term CMCSA stock holders, the thrills are of a different nature.
Jonathan Berr owns a small position in Comcast.