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Comcast in Prime Position this Year

March 07, 2012 | About:
Comcast (CMCSA) has been transforming itself since its NBC Universal deal with GE a little more than a year ago. With the deal, Comcast finally got to do what it had been trying to do since its failed Disney merger plans a few years previously: combine production with distribution.

The company now runs cable networks such as CNBC and MSNBC and Universal Pictures, theme parks in Hollywood and provides services to theme parks in Japan and Singapore. It offers video, internet and telephone services to residential and business customers. It now produces programming and then pumps it out to its customers. And customer access is changing apace, as evidenced by its latest numbers on the growth of its internet customer base.

Fourth-quarter high-speed Internet customers grew by 336,000 on the quarter, 15% more than the 292,000 a year earlier. Meanwhile its video customer losses slowed to 17,000 from 135,000 a year earlier, albeit from a far smaller base.

Broadband availability over cabled networks is still number one in the U.S. and with wireless networks gaining popularity, Comcast’s increased offering is seeing increased demand for its services which can be streamed to a number of viewing portals in the home. Just as important for its future, Comcast’s network upgrade program is pretty much complete. This is evidenced in the fall in spending of 12% seen in the fourth quarter versus the same quarter last year. As more people see the benefit of receiving programming needs via broadband connection, Comcast’s customer numbers are likely to increase further and faster with its cable broadband offering considered to be better than its competitors. With revenue per customer rising by 7% month on month at the last count, this is great news for Comcast.

At $29, shares trade on a trailing price to earnings ratio of 21, and a forward multiple of 13.32. Other providers such as DirecTV (DTV) and Dish Network (DISH) trade on trailing multiples of 14 and 9 respectively, and forward price to earnings ratios of 8.38 and 10.75. Disney (DIS), best known for its theme parks and film and television production, trades on a trailing price to earnings multiple of 15.86, and a forward multiple of 12.32.

The profit margin, at 7.7%, is lower at Comcast than the 9.51% and 10.68% seen at DirecTV and Dish respectively, though this should improve as revenues improve and costs decrease. Quarterly revenue growth at Comcast, posted at 51%, outstrips that of these two competitors (around 13% each).

Looking at the 12-month chart, the shares are trading at 52-week highs, and volume has been increasing. The 50-day exponential moving average is currently $25.75, above the 100-day exponential moving average of 24.64.

Comcast has an advanced and largely complete cable network, with quality programming and a superior distribution network. Consumers are turning to broadband to receive their tele-visual entertainment needs. The company also now has access to programming and production, unique in this market place.

The chart pattern and increasing share price supported by increased trading volume point to further gains possible.

Comcast — through good management, a forward-thinking joint venture with GE (GE) and targeted capital spending — finds itself in prime position to benefit from this shift. Comcast is likely to be No. 1 in its market for some time to come. I rate this stock a buy right now.

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