Despite the novel coronavirus sweeping across the world and grounding the global economy, U.S. stocks have been rather resilient from the March lows. To an extent, that includes Comcast (NASDAQ:CMCSA) too. However, while the 18.1% bounce in CMCSA stock sounds good, it lags the overall bounce in the S&P 500, which is up about 29% from the lows.
Why the underperformance?
When you dig into Comcast’s business, it’s not all that difficult to figure out. Like Disney (NYSE:DIS), it has exposure to theme parks, studio revenue and live-sports content. Also like Disney though, the company has some positives. Let’s explore.
Sidestepping the Coronavirus?
Comcast isn’t quite sidestepping the coronavirus, but it shouldn’t get hit as hard as Disney.
For instance, Comcast’s theme parks division falls under the company’s NBCUniversal unit and generated $5.9 billion in revenue last year. That’s only 17.4% of NBCUniversal’s total revenue. However, NBCUniversal’s total revenue of $33.9 billion represents less than one-third of Comcast’s $108.9 billion in total sales.
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In other words, theme parks represent less than 5.5% of total company revenue. Contrast that with Disney where more than 36% of company revenue is generated from theme parks and you can see the stark difference between the two business models.
While Comcast is suffering from a lack of live sports, it also doesn’t have the exposure that ESPN — owned by Disney — has to the void in sports broadcasting. One could argue that Comcast’s lack of a major streaming platform and the continued shift from cable subscriptions to over-the-top offerings is hurting the business.
That’s true and when combined with other concerns (like the theme park business), is a reasonable explanation for the tepid bounce in the share price. However, the company has a lot of exposure to news networks, internet, voice and video subscriptions. In fact, more than half its revenue ($58 billion) comes from its cable communications segment.
Is the company completely isolated from the coronavirus? Of course not. But it’s not all doom and gloom here either.
Comcast Stock Has Good Financials
Despite shares being out of favor, Comcast has solid financials overall. Revenue growth has been consistent and dependable, with sales of $80.4 billion in 2016, $84.5 billion in 2017, $94.5 billion in 2018 and $108.9 billion in 2019. That’s growth from the lower left to the upper right, and a trend we like to see.
Free cash flow (FCF) has also been strong. The company generated FCF of $8.4 billion in 2016, $10.1 billion in 2017 and $12.6 billion in 2018. While FCF growth did slow in 2019, coming in at $13.2 billion, it’s still an impressive figure and moving in the right direction.
In January, the company gave a 9.5% boost to its dividend, as the stock now yields 2.6%. This follows a dividend hike of 10.5% in 2019, 20.6% in 2018 and 14.5% in 2017.
Boosting free cash flow and returning more capital to shareholders is a priority among management. For investors, that’s exactly what they want to see. Would it be nice to see less debt on the balance sheet? Of course. But management has solid focus and continues to lead well.
The Future Is Clear for CMCSA Stock
With Netflix (NASDAQ:NFLX) reporting earnings on April 21, it’s clear that consumers are staying at home and signing up for streaming video options. Disney recently topping 50 million subscriptions in just six months for its Disney+ platform suggests the same thing.
For Comcast stock, that has both positive and negative signs. First, customers signing up for over-the-top solutions could very well cancel cable subscriptions. That’s bad for Comcast. However, they are not going to let their internet subscription go, which is good.
Beyond that though, Comcast is gearing up to launch its Peacock streaming service. At first thought, many may take a pass on yet another streaming option. But with its news and sports content via NBC and deep library of content, Comcast may actually have an opportunity here.
Remember, the company ultimately owns content like The Office (which was the top streaming show on Netflix), The Kardashians, Law and Order, Top Chef and Parks and Recreation, along with more than 1,200 hours of movies. The drawback? Peacock is likely to launch nationally in July. Earlier would have had obvious benefits.
In any regard, Comcast stock is one investors should keep an eye on. It’ll be a bumpy ride, but there are many positives here.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.
