Look Here for a Stable and Growing Business

By Federico Flom - September 28, 2012 | Tickers: CBS, CMCSA, TWC | 0 Comments

Federico is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

In this article, I will explain why I like Comcast (NASDAQ: CMCSA) and detail its main growth drivers and the reasons I think it's a solid investment.

The core cable business is the main strength behind Comcast, providing two-thirds of consolidated revenue and more than 80% of its EBITDA. This business is the core focus of the company. The main difference between Comcast's cable business from its rivals is the capability of its networks, which can offer a full complement of television, Internet, and phone services. The firm has used this edge to steal an increasing share of customer relationships from its telecom rivals, including AT&T and Verizon, which cover about 80% of its territory. I like to select companies that increase their market share.

Comcast now offers phone service to about 18% of the homes in its territory, and the business is growing despite the secular downtrend in demand for fixed-line phone service. AT&T and Verizon have upgraded some of their networks to gain the ability to offer television services and fight the encroachment on their phone business. Although both firms have achieved respectable television penetration rates in the areas they've upgraded, their impact on Comcast has remained limited. Comcast is the leader and I am sure the company will keep its competitive advantage unscathed.

Despite the company’s success in the cable business, Comcast still provides a number of innovative services, which include nationwide release of X1 services, numerous home security services such as the remote control of heating and air conditioning structure of the house, growth of Wireless coverage, as well as launching plenty of cutting-edge content for multi-platform on demand services. The next-generation web-capable system known as Xcalibur provides a hybrid IP/QAM video access with an innovative user interface and the capacity to connection third-party applications that connect into a cloud-based system.

Comcast released their biggest innovative product called Xfinity Streampix, a month-to-month dependent on-demand video streaming services . It is an important enhancement of the company’s pay-TV packages, which at present gives standard TV shows and Xfinity on-demand shows for TV sets as well as broadband capable gadgets. With Xfinity Streampix, a consumer can instantaneously watch movies and TV shows regardless if he/she is at or just away from the house on several programs, like TV sets, computers, and mobile devices. This shows that Comcast keeps innovating and releasing high-demanded products.

Another innovation from Comcast is the completed upgrade of DOCSIS 3.0 as well as the upgrade of all digital networks. With DOCSIS 3.0, Comcast has become ready to provide the fastest Internet speed in the market. Comcast established a strategic partnership with Skype to deliver their subscribers high-definition video chat from their television sets with a unique device kit supplied by the company. The organization has the capacity to build and maintain its revenue because management is prepared to improve its own subscribers to advanced level services.

Comcast has additionally jumped into content creation by partnering with NBCU. NBCU features an extensive selection of content services or products and is developing a huge presence in sports programming. NBCU's broadcast television industry provides Comcast with bonus possibilities. Eventually, NBCU's potential to get multiple distribution channels will allow the partnership to develop successful content franchises. At the same time, the control of critical content should make it possible for Comcast to gain a powerful control in leading the future advancement of broadcasting.

Comcast is now a media platform armed with a distinctive control over each content and broadcast after accomplishing the acquisition of a controlling venture in NBC Universal. Presently, Comcast handles one-fourth of the US. pay-TV residences backed by a large content creation empire. The business is attempting to enhance NBC Universal sports as well as motion picture theaters to accumulate significant charges from cable providers. Comcast now acquired the remaining 50% venture of the Universal Concept. After taking in majority share of NBC Universal, Comcast’s advertising and marketing revenue could rise to over $10 billion yearly.

Even though Comcast struggles with basic video subscribers, the organization has done well while minimizing their churn rate and increasing overall results. In the second quarter of 2012, Comcast lost 176,000 video subscribers as compared to 238,000 in the prior-year quarter. Similarly, in the last quarter, the company gained a net 156,000 high-speed Internet customers, as well as 158,000 phone subscribers. Earnings and operating cashflow improved 6.1% and 4.2%, respectively, year over year. The company’s free cash flow, which is an important development metric for the cable TV business because of its highly leveraged dynamics, has grown an average 2.2% every year. Quarterly combined average earnings per consumer (ARPU) was $148.57, up 8% yearly.

Comcast is currently trading at 17.7x average analyst 2012 earnings estimate. This is a premium over the S&P 500 but a discount to the industry average. After acquiring a majority stake in NBC Universal, Comcast became a media mogul controlling both rich content and distribution networks. I believe this will drive the stock price in the near future. I also remain quite optimistic regarding the company diversification, network upgrade, and innovative product offering strategies. Comcast also is trading at a lower P/BV than competitors Time Warner Cable (NYSE: TWC), News Corp and CBS Corporation (NYSE: CBS). In fact, Comcast trades a 2x book in comparison to Time Warner 3.93x, News Corp 2.35x and CBS 2.34x. Given the above-mentioned positives, I believe Comcast deserves to trade at a higher multiple. I think the stock is great of value oriented investors that look for highly stable, defensive business models.

federicoflom has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

Look Here for a Stable and Growing Business

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