Comcast Corporation (CMCSA) Making All Right Moves

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Comcast Corporation (NASDAQ:CMCSA) appears to be making all the right moves. Even in the company’s third quarter results, cord cutting worries began to wane. Now, the recent quarter indicated an addition of subscribers compared to a loss of subscribers. The company’s NBCUniversal also provides growth prospects and protection with its desirable content portfolio. The company is also eyeing entry into the wireless service category. The cable service provider has also boosted its dividend rate for the seventh straight year with 22% average growth rate in the last five-year period. Its performance should also provide ammo to boost the share repurchase program.

Though cord-cutting might be an issue for other cable service provider, Comcast Corporation (NASDAQ:CMCSA) at least had a break from the issue if the last two quarterly numbers are of any indication. This opinion has been endorsed by Lakewood Capital’s founder, Anthony Bozza. In fact, he believes that the stock provides an attractive opportunity to buy. Bozza thinks that the biggest cable operator has a predictable, high quality and growing earnings stream. Aside from that, the stock provided an attractive multiple of the 12x free cash flow of the next year. He firmly believes that the growth of Netflix, Inc. (NASDAQ:NFLX) and cord cutting were not a threat to the company at all.

For instance, Comcast Corporation (NASDAQ:CMCSA)’s third quarter results indicated that it witnessed video customer loss of 48,000, which was better than the 81,000 subscribers loss in the preceding year quarter. That appeared to be the beginning of the end of cord cutting as the cable firm witnessed video customer net additions of 89,000 in the fourth quarter. Significantly, the net addition was the biggest in a quarter, in the last eight years. This was credited to the company’s bundle of services or double or triple product relationships.

Superior High-Speed Internet

One of the reasons that customers would continue to prefer Comcast Corporation (NASDAQ:CMCSA) was the company’s superior high-speed internet. That was also demonstrated in its recent results. For the fourth quarter and the full year 2015, the company’s net customer addition was 460,000 and 1.4 million respectively. It was also the tenth straight year of achieving over one million net additions per year and was termed the best in eight years. However, its voice customer net additions witnessed a slowdown to 282,000 in 2015. The hedge fund manager believes customers would stick with the company. Bozza told his investors that even if there is going to be cord cutting, the impact on the possible earnings would be a minor one. Bozza is likely pointing to the higher margin broadband product which doesn’t have to pay out licensing fees for videos.

In addition if a customer prefers Comcast Corporation (NASDAQ:CMCSA)’s standalone broadband product, then it would be more expensive. On top of that if the users were going to use streaming video, then it would become still more expensive as the user might have to upgrade to the highest speeds. As the customers would increasingly look for fast internet speed as a basic requirement, the company provides the highest speed for most of its complete footprint. The fact is that it competes in half of its market with slower legacy DSL offerings while in 35% of its markets, the cable firm competes against a hybrid copper or fiber product. The remaining 15% footprint has a fiber alternative, which can compete with its speed and quality.

Free Cash Flow To Increase

Comcast Corporation (NASDAQ:CMCSA)’s free cash flow was $8.5 billion in 2013, which dipped to $8.2 billion in 2014 but recorded growth of 8.5% to reach $8.9 billion in 2015. On a per share basis, free cash flow was $3.19 in 2013 and $3.12 in 2014 and witnessed 13.8% growth to reach $3.55 free cash flow per share in 2015. Lakewood is fully aware of the potential and expects the company to achieve nearly $5 a share of free cash flow by the end of the year 2018. The hedge fund has started accumulating its position since the first quarter of the last year. Currently, it is said to be holding 2.19 million shares.

Let’s also look at some other factors of Comcast Corporation (NASDAQ:CMCSA) that could be vital in taking a call on buying or selling the shares. The company boosted its dividend rate by 10% to $1.10 a share and intends to buyback $5 billion worth of shares in the current year. It has $10 billion for share buyback program. Its Xfinity added 666,000 customer relationships representing 86% YOY growth. Similarly, NBCUniversal closed the year after claiming to be the number one among adults age group of 18 – 40. It was the first studio ever to have three films that crossed $1 billion in the same year.

Valuation

Lakewood has a price objective of $87 a share for Comcast Corporation (NASDAQ:CMCSA). Its valuation was based on a 17x multiple on taking into consideration the cash flow and high-quality growth prospects. The hedge fund sees close to 60% return in two years time. Its price to cash flow is 8.0 times compared to the S&P 500’s 11.1 times. Its forward price earnings were 15.1 times compared to the broader index’s 16.6 times providing further upside potential from the current price. Most of the analysts’ have a price objective of above $70.

Conclusion

Comcast Corporation (NASDAQ:CMCSA) is well-placed from all aspects. There is unanimity that the cord-cutting is an overblown one. Its recent quarterly numbers demonstrated that. Also, its bundled service is an irresistible one for the millennials, who were responsible for cord-cutting. Its other divisions are also performing well. There appears to be less risk in investing the leader of the cable business.

Disclaimer: The opinions and data expressed herein by the author are not an investment recommendation and are not meant to be relied upon in investment decisions. The author is not acting in an investment advisory capacity, nor is this an investment research report. The author’s opinions expressed herein address only select aspects of potential investment in securities of the company or companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies’ SEC filings, and consult a qualified investment advisor. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice.

Viraj Shah

Viraj Shah has completed M.Com (Finance) and is currently pursuing his CFP. He tracks US markets along with other global markets like India very closely. He is very passionate about stocks, real estate, and technology. He also believes that money can always be made in the market.

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