All Time Highs for This Entertainment and Information Giant

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 2013 begins, I would like to pinpoint on a leading provider of entertainment, information, and communications products and services, Comcast Corporation (NASDAQ: CMCSA).

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The Business:

Warren Buffett once said, “Never invest in a business you can’t understand.” This not only allows the investor to purchase a company with conviction, however also allows them to spot trends blind to unfamiliar eyes. With this in mind, investors in any company should fully understand the business model of the company. Comcast is a provider of entertainment, information, and communications products and services. The company’s five main segments are; cable communications (video, high-speed internet, and voice services), cable networks (national, regional, and international networks), broadcast television (NBC and Telemundo), filmed entertainment (Universal Pictures), and theme parks (Universal parks). Due to pricing power and a healthy business model, Comcast carries a net profit margin slightly under 10%, sitting at 9.53%.

Strengths:

  • Accelerated Revenue Growth: In 2007, Comcast reported revenue of $30.89 billion; in 2012, the company announced revenue of $62.57 billion, representing year over year annual growth of 15.16%, a trend which is highly anticipated to sustain into the future with projections placing 2017 revenue at $80.46 billion (this explosive growth has primarily been a result of an explosion in the company’s NBC and Comcast content segment from 2010 to 2011).
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  • Profit Margin Expansion: The company’s profit margin has grown from 8.40% in 2007 to 9.90% currently on a trailing 12 month basis, and this trend of profit margin expansion is extremely advantageous to the company.
  • Strong Free Cash Flow Position: In 2013, Comcast is projected to generate $9.6 billion of free cash flow from its business, a statistic which is anticipated to grow to $12 billion in 2019, and this strong free cash flow position will allow the company to reinvest in its own business and reward shareholders.
  • Dividend: Currently, Comcast pays out quarterly dividends of $0.19, which annualized puts the dividend as yielding 1.89%.
  • Institutional Vote of Confidence: 63.51% of shares outstanding are held by institutional investors, displaying the confidence some of largest investors in the world have in the company and its future.
  • Reasonable Valuation: Comcast presently withholds a price to earnings ratio of 18.80, a price to sales ratio of 1.94, and a price to book ratio of 2.36; all of which indicate a company trading with a fairly reasonable valuation, however this valuation is slightly above industry averages.
  • Established Network: As of the end of 2011, Comcast had 49.8 million total customers, and the infrastructure capable of providing video, high-speed internet, and voice services to residential and business customers, and with this established nature comes a greater level of security for investors.

Weaknesses:

  • Net Debt: Despite possessing $19 billion of cash and cash equivalents on their balance sheets, the company’s debt load of $57.4 billion results in a net debt for the company, equating to $38.4 billion, or around $14 per share.

Opportunities:

  • Acquisitions: On February 13, Comcast announced that it will pay $16.7 billion to purchase General Electric’s 49% stake in their NBC Universal joint venture, and further acquisitions could provide substantial opportunities for the company.
  • Dividend Growth: Since implementing their dividend program in 2008, Comcast has consistently raised their dividend payouts, and further dividend growth could provide opportunity to shareholders.
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  • Growth in Subscription Fees: Broadband subscription fees per customer have grown from $42.90 in 2008 to $49.20 currently on a monthly basis, and further growth in the broadband subscription fee statistic will improve margins.
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  • NBC: NBC cable networks revenue has grown from $2.14 billion in 2008 to $8.32 billion currently, NBC broadcasting revenue has grown from $5.94 billion in 2011 to $7.34 billion currently, NBC filmed entertainment revenue has grown from $4.24 billion in 2011 to $5.37 billion currently, and NBC theme park revenue has grown from $1.87 billion in 2011 to $2.19 billion currently; and further growth in one of the fastest growing segments for Comcast could substantially assist the company in overall growth (The NBC segment makes up 24.97% of overall business.
  • Growth in US Internet Market: The company’s broadband internet segment makes up 23.44% of overall business, and is located in the rapidly expanding United States Internet market, growing from 82.6 million in 2008 to 100 million currently, and with projections placing the number of US internet households in 2019 at 123 million, this growth market presents an incredible opportunity for the company.
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Threats:

  • Online Video Streaming Services: Cable services make up a considerable portion of Comcast’s overall revenue, and the growing popularity of online video streaming services such as Netflix and Hulu pose a major threat to Comcast as they are less expensive and sometimes more accommodating to viewers

Competitors:

Major publicly traded competitors of Comcast include Time Warner Cable Incorporated (NYSE: TWC), News Corp (NASDAQ: NWSA), CBS Corporation (NYSE: CBS), and The Walt Disney Company (NYSE: DIS). All of these companies operate in the same industries as Comcast and compete directly with the company for the business of consumers. Time Warner Cable is valued at $25.88 billion, pays out a dividend yielding 2.99%, and carries a price to earnings ratio of 12.62. News Corp is valued at $67.20 billion, pays out a dividend yielding 0.59%, and carries a price to earnings ratio of 17.06. CBS is valued at $20.36 billion, pays out a dividend yielding 1.08%, and carries a price to earnings ratio of 19.25. Disney is valued at $100.40 billion, pays out a dividend yielding 1.35%, and carries a price to earnings ratio of 17.99. Time Warner is primarily focused on providing video, high-speed data, and voice services to its United States customers, and poses a major threat to Comcast in certain regions of the country. New Corp is heavily diversified with segments stretching from filmed entertainment to publishing, however the company competes most directly with Comcast in its cable network segment. CBS focuses most heavily on its cable networks segment and competes with Comcast for the viewers’ attention. Walt Disney is greatly diversified, with operations from parks and resorts to studio entertainment, however a small portion of the overall company is located in the cable networks industry.       

The Foolish Bottom Line:

Financially, Comcast is extremely solid. The company possesses accelerated revenue growth, a fairly reasonable valuation, and a strong free cash flow position. Despite the company’s single digit profit margin and net debt, accelerated growth is projected to stem from the company’s rapidly expanding NBC segment and growing potential customer base. In the long run, Comcast is a tremendous investment that should provide investors with rewarding returns over the coming decades, however investors should wait for any pullback from these historic prices before pouring in.     


makinmoney2424 has no position in any stocks mentioned. The Motley Fool recommends Walt Disney. The Motley Fool owns shares of 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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