Comcast Nails It, Now Hurry and Get Out

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

Comcast (NASDAQ: CMCSA) investors have to be ecstatic – virtually all the recently announced earnings news was good. Revenues were up by 3% ... OK, that’s not overly impressive but it was enough to keep Comcast’s quarterly revenue growth string alive. And income shot up to $1.29 billion from the $1.02 billion earned in Q4 of 2010. Now that's more like it. Plus it’s nice to see the company improve the margins after some slight erosion in that area. But that somehow seems a bit nitpicky vs. all the other stuff.

Those figures alone, not to mention they killed analyst guesstimates of $0.41 a share, were enough to warrant a spike in share price. But the company didn’t stop there, oh no. The board approved a bump in the annual dividend to $0.65 a share – that’s up over 40% in one fell swoop. Add to that a $6.5 billion share buyback plan and CMCSA was handing out gifts like the big red guy during the Holidays.

So What’s Not to Love?

With the nice 5% run-up after today’s announcement, Comcast has widened what was already a pretty big gap from others in the industry in one important aspect – their relative value. Right now Comcast is trading over 20 times earnings, easily the most expensive stock in the sector. To give you an idea Time Warner (NYSE: TWC) trades for less than 14 times earnings, the smaller Cable Vision Systems (NYSE: CVC) is at 15, and media and broadcast company CBS (NYSE: CBS) has a P/E of 16.82. The first two, TWC and CVC, also pay higher dividends and in Cable Vision’s case considerably higher – 4.12% vs. Comcast’s new and improved 2.27%.

For investors that trade on future earnings, CMCSA is still pretty steep -- over 15 times earnings at the current share price. In an economy slowly recovering from a recession, 52-week highs aren’t going to be the barriers they sometimes are. More and more companies will pass through these as 2012 plods along. In the case of Comcast trading beyond the company’s 52-week high of $29.05, that seems almost a foregone conclusion, but where to from there?

This is about a $30, maybe a $32 stock on a ridiculously good day when investors are feeling overly optimistic – maybe. At current levels, it doesn’t make sense to take on that kind of risk for a stock that's enjoyed this kind of pop for 5% – 7%. The profit takers, of which you should consider being one if you’re a shareholder, aren’t going to sit on their hands long after today.

Comcast nailed it, no doubt. But for investors this was a stock that already traded at expensive multiples and is becoming considerably more expensive with every passing minute. If you’re not in, look for greener pastures with more opportunity. CMCSA shareholders, get your limit orders in now and take some profit if you can. You’ll be able to get back in before too long with the sell-off.

The investment opinions included are just that, opinions. Investing involves risk, as you well know, so consider your decisions wisely. Tim holds no position in the securities mentioned in this article.

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