Should Investors Be Changing the Channel to Comcast?

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

A SWOT analysis is a look at a company’s strengths, weaknesses, opportunities, and threats, and is a tremendous way to gain a detailed and thorough perspective on a company and its future. As the 2012 year draws to a close, I would like to highlight a global trailblazer in the entertainment, information, and communications industries, Comcast Corp. (NASDAQ: CMCSA).

 

Strengths:

  • Explosive Revenue Growth: In 2006, Comcast reported revenue of $27.6 billion; in 2011 the company announced $55.8 billion in revenue; representing year over year annual growth of 15.12%; this trend is highly anticipated to sustain into the future, with projections putting 2015 revenue at $68.7 billion.

 

  • Dividend: Currently Comcast pays out quarterly dividends of $0.1625, which annualized puts the dividend as yielding 1.75%
  • Reasonable Valuation: At the moment Comcast trades with a price to earnings ratio of 16.97, a price to book ratio of 2.13, and a price to sales ratio of 1.76, all of which point to a company that is fairly valued
  • Institutional Vote of Confidence: 67% of shares outstanding are held by institutional investors, displaying the confidence some of the largest investors in the world have in the company and its future
  • Established and Diversified Nature: As of the end of 2011, Comcast had 49.8 million total customers, stretching across the entire United States, giving the company a certain sense of establishment and diversification
  • Impeccable Business Model: Comcast’s business model is much like a REIT’s -- Comcast acquires customers who sign onto multi-year contracts, locking in a solid revenue stream, giving the business incredible predictability and certainty

Weaknesses:

  • Debt: Comcast currently possesses about $38.6 billion of debt on their balance sheet, which is a major disadvantage to the business

 

  • Tight Margins: At the moment Comcast possesses a net profit margin of 7.45%, which is rather tight; however over the past years profits have grown at a much slower pace than revenues, representing a decline in margins

 

  • Dependence on the United States: The large majority of Comcast’s business is conducted in the United States, and this dependence on the United States could hurt Comcast
  • Massive Operating Expenses: Comcast employs 126,000, and with running a company worth $98.93 billion comes substantial costs; however these operating expenses have been growing faster than profits, a troubling sign

  

Opportunities:

  • Acquisitions: According to wikiinvest.com, Comcast spent $9.41 on acquisitions this year, unmatched by any other company in its industry, and further acquisitions could fuel growth into the future
  • Expanding Customer Base: From 2010 to 2011, Comcast’s customer base grew by 1.4 million, or 2.89%, and further expansion in the customer base presents an opportunity to the company to further grow
  • Deriving More From Each Customer: From 2010 to 2011, the average total monthly revenue per customer reached $141, an increase of 7% year over year, and further growth in the amount of money Comcast derives from each customer is probable as Comcast offers more and more features and services
  • Dividend Growth: Since implementing their dividend program in 2008, Comcast has consistently increased their dividend payouts, and this trend is highly anticipated to sustain into the future

  

Threats:

  • Competition: As in any industry, Comcast faces fierce competition, and this competition can cut into the company’s profits as all companies attempt to offer the best product for the least amount of money
  • Aging Infrastructure: New technologies are constantly being released, and Comcast’s scramble to remain competitive leads them to regularly update their infrastructure to make it capable of sustaining this new technology, which costs millions
  • Online Video Streaming: Much of Comcast’s revenue is derived from cable services; however the rising popularity of online streaming services such as Netflix and Hulu have become a major threat to Comcast, as they are much cheaper than Comcast’s services

Competition:

Major publicly traded competitors of Comcast include Verizon Communications (NYSE: VZ), CBS (NYSE: CBS), Time Warner Cable (NYSE: TWC), and Walt Disney (NYSE: DIS). Verizon also is a provider of entertainment, communications, and information services, and has battled publicly with the company’s FIOS against Comcast’s Xfinity. Verizon is valued at $124.35 billion, and pays out a dividend yielding 4.73%. CBS owns its CBS channel, which competes directly against Comcast’s NBC channel for the attention of the consumers. CBS is a much smaller company, being valued at only $23.96 billion, however pays out a dividend yielding 1.29%. Time Warner is a provider of video, data, and voice services in the United States, is valued at $28.83 billion, and pays out a dividend yielding 2.34%. Disney is a diversified entertainment company, and owns the Walt Disney Theme Parks, which compete directly against Comcast’s Universal Studios. Disney is valued at $88.61 billion, and pays out a dividend yielding 1.50%.

The Foolish Bottom Line:

Comcast possesses explosive revenue growth and a growing dividend and customer base. Comcast possesses fast growing operating expenses, however the company is priced at a reasonable valuation. At the end of the day, Comcast has rallied nearly 60% in 2012 but, as the chart below displays, is still priced at a rock bottom price, and is an excellent addition to any long-term portfolio.

     


makinmoney2424 has no positions in the stocks mentioned above. 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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