Weekly Stock Report CMCSA

mr-wallstreet (38)in #investing • 6 years ago

Weekly Stock Report CMCSA

1–14–2018

Comcast Corporation

Headquarters: Philadelphia, PA since 1963

Ticker (CMCSA)

Price: $35.81

Dividend yield: 2.1%

Morningstar: 4 of 5 stars

Piotroski F-Score: 6 of 10

I recently cut the cord and decided to use my smart tv and Netflix as my main television entertainment. After doing this, I wanted to know how some of the cable companies are doing and I also heard today that CMCSA was going to rule out a streaming service this year to compete with Disney (DIS) and Netflix (NFLX).

I know that I am not the only one thinking of this, i’m usually late to the party. So I decided to take a look and see if any big players are invested in the stock. I found a lot of big player are already in the giant media company. Let's dig deeper and see if any of the big players bought in 2018. i found four big players, Julian Robertson, Mike Price, John Paulson, and Mason Hawkins have acquired new positions in CMCSA anywhere from $30-$38 price range. This makes me more interested in the company and possibly making an investment.

This company is mainly a Media company specifically in the Cable Television industry. Within this industry, I decided to concentrate on a companies with the largest market value and which are publicly trading with outstanding shares (market capitalization). CMCSA by far was the largest by a landslide. CMCSA $162 billion market cap, followed by Charter Communications (CHTR) $67 billion, and Dish Networks (DISH) $13 billion. I would think with such a big difference in market capitalization that Comcast will be around for many years. Lets see if they are diversified in anything else to verify this thought.

As I researched the diversification of the company, I realized they operate through multiple segments including cable communications, cable networks, broadcast television, filmed entertainment, and theme parks (surprised me). This starts to make this company complicated and i like to be able to understand companies to invest in them. Let's break down the segments to see if we understand them and know of any of the components.

Cable Communications- I am sure we seen the commercials for bundling cable, high speed internet, voice, and now security with automation services (lights, furnace, locks, etc). Well CMCSA does this through their XFINITY brand. That is right if you use XFINITY for anything you are already using a piece of CMCSA. Can’t forget they also provide these services to businesses as well.
Cable Networks- This segment provides some of the national entertainment, news and information content.
Broadcast Television- Operates NBC, Telemundo and other various digital properties.
Filmed Entertainment- This segment is most notable when you go to the movies and probably all of us had a little of CMCSA in our lives. They develop, produce, acquire, market, and distribute entertainment under Universal Pictures, Illumination, Focus Features, and Dreamworks Animation.
Theme Parks- This was also a surprise to me. They operate Universal Theme Parks which is in Florida, California and Japan and a great time. Also not only do the own the Wells Fargo Center arena in Philadelphia, PA but they also own the Philadelphia Flyers for you hockey fans.

Now that I broke down the diversification, I definitely have a better understanding of the company. This diversification should keep the company afloat in good and bad times. Just to make sure, I like to look at the companies past and current growth numbers. Since this company has been around for a while, I will use the 10 year and 1 year growth rate numbers.

Book Value: 7% and 31%

Earnings Per Share (EPS): 24% and 161%

Operation Cash Flow: 9% and 11%

Sales: 9% and 5%

For such a big company and diversified company these numbers look great. Sales growth could use a lift. When this company starts to stream it may slowly steal customers from Netflix including myself.

As always, lets take a look at the management. The Chairman, CEO and President is Brian L Roberts. He was named President in 1990. I like that he has been with the company for so long and the company has grown. Since he took over the company had $657 million in annual revenue and has since grown to $84 billion in annual revenue. He has won numerous business and industry honors for his leadership and recently recognized as one of the worlds 30 best CEOs. And if that wasn’t enough he is also a member of the business roundtable and serves on the President’s Council on Jobs and Competitiveness.

I can say with confidence that the CEO is doing a great job but I still like to check the equity of the company to make sure he hasn’t been slipping. Let's continue to use the ten and one year growth rates.

Return on Invested Cash is 7% and 17%

Return on Equity is 13% and 30% continuing to increase.

Cash to debt is on .15 which is on the low side. However the debt is being used to grow (purchase) and has not been increasing. i would rather see this ratio closer to one.

Everything else about CMCSA seems good as a long term investment. At this point I like to put a value on the company and see if I would buy today. The lowest growth rates I have mentioned is five and seven percent. The highest growth rates was 161 and 31. To be very conservative I will use a future growth rate of six percent for earnings and take a lower average historical PE ratio of 12.

EPS $5.11 at 6% for 5 years grows to $6.64.

$6.64 times a PE of 12 is $79 per share.

Today price $36 to a five year price of $79 is a very conservative compound annual growth rate of (CAGR) 17% a year not including dividends. Using are very conservative growth numbers, I wouldn’t say this company is cheap but it is valued right were it should be for long term growth.

Main competition risk:

“The results of operations of our reportable business segments are affected by competition, as all of our businesses operate in intensely competitive, consumer-driven and rapidly changing environments and compete with a growing number of companies that provide a broad range of communications products and services and entertainment, news and information content to consumers. Technological changes are further intensifying and complicating the competitive landscape and challenging existing business models. In particular, consumers are increasingly turning to online sources for viewing and purchasing content, which has and likely will continue to reduce the number of our video customers and subscribers to our cable networks even as it makes our high-speed Internet services more valuable to consumers. In addition, the increasing number of entertainment choices available has intensified audience fragmentation, which has and likely will continue to adversely affect the audience ratings of our cable networks and broadcast television programming.”

A few other risks the company and I believe that investors should to be aware of:

“A decline in advertisers’ expenditures or changes in advertising markets could negatively impact our businesses.”

“Programming expenses for our video services are increasing, which could adversely affect our Cable Communications segment’s video business.”

“Success depends on consumer acceptance of its content, and its businesses may be adversely affected if its content fails to achieve sufficient consumer acceptance or the costs to create or acquire content increase.”

“We rely on network and information systems and other technologies, as well as key properties, and a disruption, cyber attack, failure or destruction of such networks, systems, technologies or properties may disrupt our businesses.”

“Our businesses depend on using and protecting certain intellectual property rights and on not infringing the intellectual property rights of others.”

“Acquisitions and other strategic initiatives present many risks, and we may not realize the financial and strategic goals that we had contemplated.”

I think these risk are normal risk that the company has been dealing with for years and will continue to deal with for years to come. The current CEO has dealt with these risks for four decades and i believe will continue to manage the risk accordingly. In my opinion, if a recession does happen people are still going to want internet and continue to stream television at home.

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