A Truly ‘Best-in-Show’ Media Investment

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Comcast (NASDAQ: CMCSA) expects revenues to be up 9% this year, and 2% by the end of 2013 due to better penetration of bundled products, including video, data and voice. The media giant combined with NBC Universal in 2011 and is now a highly diversified cable and broadcasting company, which has also added to its services segment by widening its footprint in the ad industry.

The media company has managed to mitigate its churn rate, losing only 117,000 subscribers in 3Q, compared to 165,000 for 3Q 2011. Third quarter revenue also grew 15% and operating cash flow expanded 10% on a year over year basis. With close to $10.3 billion in cash, Comcast has the potential to raise its dividend, yielding 1.8%, while continuing strategic acquisitions.

Investments in direct sales have also helped the media company to target new customers, where a new retention policy is boosting conversion to higher-tier services. Last quarter's average revenue per user came in at over $150, up 9% year over year.

Comcast managed to add 100,000 advance service customers and now serves a fourth of the U.S.'s pay TV households. The company sports one of the media industry's best EBITDA margins (33%) and a solid balance sheet, with a debt ratio of 24%. Billionaire Ken Fisher took a new stake in Comcast worth over 11 million shares last quarter (check out Ken Fisher's key buys).

Time Warner Cable (NYSE: TWC), meanwhile, pays the highest dividend of the five media stocks listed at 2.4%, a payout of only 30%. Although Time Warner appears cheap with a forward P/E of 14x, the company has a relatively low 5-year earnings growth rate (13%), and a high debt ratio of 55%.

News Corp (NASDAQ: NWS) has strong appreciative potential following an expected spin-off in 2013. This media stock pays a rather low dividend yield (0.7%), but its low forward P/E (13x) and above-average EPS growth rate (15%) make News Corp one of Comcast’s top competitors on the investing front.

How does Comcast compare, then, to two other media giants?

CBS (NYSE: CBS) is also relatively cheap on a forward P/E basis (13X). The company obtains over 50% of revenues from its entertainment division, and has solid mid-level growth (14% 5-year expected CAGR), an attractive EBITDA margin (23%), and a modest debt ratio (23%). With over 4 million shares, David Einhorn owns the biggest stake in CBS amongst the hedge funds we track (check out David Einhorn's top picks).

Disney (NYSE: DIS) is a bit more diversified with solid revenue generation from theme parks and TV networks. Disney has the lowest debt ratio at 20%, but also has the lowest expected 5-year growth rate at 11%. This mediocre growth rate puts Disney's PEG near the upper end of the industry at 1.4. Multi-billionaire George Soros is one of Disney's big name shareholders (see George Soros' newest investments).

Given Comcast’s best-in-show growth, profitability and balance sheet, we see it as one of the top media investments as we head into 2013. Comcast’s promising dividend yield of 1.8% is also attractive, and that’s only a 25% payout of earnings.

This article is written by Marshall Hargrave and edited by Jake Mann. They don't own shares in any of the stocks mentioned in this article. The Motley Fool owns shares of Walt Disney. Motley Fool newsletter services recommend Walt Disney. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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