Why Comcast isn’t Finished Rising

By Ryan Guenette - August 22, 2012 | Tickers: CBS, CMCSA, NWSA, TWC, DIS | 0 Comments

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Over the past year Comcast Corporation (NASDAQ: CMCSA) has drastically climbed 60.13%, vastly outperforming the S&P 500 which has risen only 16.71% over the same time period. Comcast is a provider of entertainment, information, and communications products and services. The company provides video, high-speed internet, and cable services to its residential and business customers, as well as operates its national television networks, regional sports networks, and international cable networks. Comcast’s most famous brand, NBC Universal, consists of a number of channels, viewed by millions daily. Possessing a market capitalization of $91.14 billion, Comcast is the largest player in the industry. As of last check, Bill Gates held 1,000,000 shares of Comcast in the Bill & Melinda Gates Foundation Trust Portfolio, a position he recently opened. So why after a huge run up, is it time to scoop up Comcast just south of all-time highs, or should investors get out while they can.

Entertaining Growth   

In 2009, Comcast reported earnings per share of $1.28. In 2014, the average analyst believes Comcast will derive $2.51 from its business operations. This represents a 96.09% increase in earnings per share over 5 short years. Based on these statistics, the company’s compound annual growth rate (CAGR) is 14.42%, an astonishing feat for one of the largest companies in the world. Comcast is projected to grow it earnings each and every single year during this period, displaying tremendous financial consistency. Currently, Comcast pays out an annual dividend of $0.64, which at the current price, puts the yield at 1.90%. This is up from 2011’s annual dividend of $0.44, which is further expected to expand into the future. By 2014, the street anticipates Comcast’s dividend to reach $0.80. From this we can see Comcast’s underlying financial strength, consistent growth, and rewarding dividend that is set to continue to grow into the future.

The chart below displays Comcast’s sales, operating profit, net income, net margin, operating margin, earnings per share, dividend, and rate of dividend (the percentage of net income that is paid out in the dividend) over the coming years.

Monumental Milestone & Growth Strategy

In 1999, Comcast shares made an all-time high of $36.42, and since that moment have not come anywhere near this monumental milestone. Now 13 years later as share prices race back towards this level, Comcast shares currently sit only $2.31 from their all-time high. A push through this level could result in further acceleration in the upward movement of Comcast's shares, an occurrence that is sure to occur sooner than later. The chart below displays the significance of this movement.

The company's growth strategy consists of reinvesting back into its core businesses and acquiring smaller networks that offer substantial growth. Additionally, Comcast will attempt to take market share away from competitors using its superior stature. Finally, Comcast will attempt to take advantage of the growing popularity of amusement parks, by operating its Universal Park & Resorts.

One last aspect of Comcast that is noteworthy is its ability to create book value and cash flow. In 2009, Comcast possessed $15.10 in book value per share and $3.59 per share in cash flow. In 2014, the average analyst consensus believes Comcast will possess $21.80 per share in book value and $6.09 per share in cash flow. Comcast’s ability to grow book value will allow investors to pay less for future earnings, and cash flow will allow Comcast to pay out its dividend and reinvest in its own business as well as acquire others. Comcast’s price to book ratio is under 2, which is relatively inexpensive for a company with annualized double digit growth.

The chart below displays Comcast’s book value per share and cash value per share over the foreseeable future.

In conclusion, Comcast is crawling closer and closer to new all-time highs, possesses a strong growth strategy, and withholds the ability to create book value and cash flow for shareholders.

Who Has the Best TV Ratings?

Compared to some of Comcast’s most prominent competitors, such as: Time Warner Cable Incorporated (NYSE: TWC), News Corporation (NASDAQ: NWS), CBS Corporation (NYSE: CBS), The Walt Disney Company (NYSE: DIS), Comcast compares relatively favorably.

In terms of growth, CBS leads the industry, while Comcast displays its steadiness. All companies pay out decent dividends, with Time Warner having the largest dividend, and Comcast having the fastest growing dividend. In the fundamental ratio comparison, CBS trades at the most ideal ratio, while News Corp trades at a premium to its peers. All companies trade right around ideal ratio of 1 when growth is taken into account. In the net profit margin comparison, Disney stands out to the upside, while Comcast stands out to the downside.

The Foolish Bottom Line

Comcast is the largest player in its industry, being valued at nearly $100 billion. Over the past year, the stock has been on an absolute tear, rising just dollars from all-time highs. Even at these elevated prices, Comcast remains appealing. Comcast possesses incredible underlying financial strength and uplifting growth prospects. Comcast also has a strong strategy for expansion, and produces book value and cash flow for its shareholders. While its dividend is not overly substantial, it is a little icing on the cake. The foolish bottom line is that Comcast is a great addition to the Gates’ portfolio, as well as yours.      

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