The shares of Media and technology company Comcast (CMCSA) have declined more than 4% in 2014. Comcast had a mix performance earlier with the decline in revenue, but earnings remained flat. Still, the company is growing strongly and seems well-positioned to deliver solid long-term growth.
Let’s analyze in detail the financial performance of Comcast and determine whether conditions are favorable for growth in the long run or investors should consider buying some other stock instead.
Comcast is quite confident about its solid outlook with many of its segments such as cable communications, cable networks, broadcast television, filmed entertainment, and theme park growing robustly in sales. The cable communication segment presented by the XFINITY brand including video, high-speed Internet, and voice services for residential and business customers reported strong growth numbers the previous year.
The number of customers added by Comcast approximated 17% to 1.8 million in 2013 as compared to last year. The number of customers for video, high speed internet, and voice in the fourth quarter of 2013 reached 649,000 which’s 29% increase from the same quarter previous year. Hence, Comcast has a robust chance of performing well in the coming quarters with such a solid customer base.
The Triple Play strategy of Comcast is believed to carry this positive momentum to fiscal 2014 as well. The Triple Play strategy comprises of television, internet, and phone which have all experienced robust growth for the past one year since the customers are using multiple products.
According to management, approximately 79% of video customers for Comcast demanded additional two products and 44% of its new customers availed for all the three services during the fourth quarter. Overall, the company added 1.3 million new customers during the fourth quarter which marks its eight consecutive quarters of adding more than 1 million new customers. Comcast is currently determined to increase the value of the Triple Play strategy with robust strategic investments to drive constant growth.
Further, during the second half of 2013 Comcast had launched X1 boxes and wireless gateway services which’s a part of the Triple Play strategy. The X1 boxes are launched with a wide range of content choices and several value added services as well. Moreover, the company is witnessing robust customer interest for its video on demand (VOD) service. Moving ahead, Comcast has plans to increase the spending on X1 boxes as it is now available in all markets, and the company focuses on reaching more customers.
Comcast has plans to deploy additional wireless gateways to further enrich customer experience by providing the fastest in-home Wi-Fi experience and by increasing network capacity.
The cable network segment of Comcast has produced sequential and substantial increase in sales since its merger with NBCUniversal in 2011. Moreover, in the recent past Comcast signed an agreement with Netflix (NFLX) to allow direct access of its broadband network that is believed to improve speed and reliability of Netflix’s video-streaming customers. Comcast is expected to improve its profitability through the initiative as Netflix’s customers will experience good speed and faster viewing allowing for more subscriptions.
Further, Comcast has increased its dividend by 15% due to witnessing robust momentum across all its businesses. For the next couple of years, the company has also raised its stock repurchase program authorization to $7.5 billion.
Thus, investors can benefit 30% increase in capital returns due to these moves. Moreover, Comcast illustrated 8.3% increase in operating cash flow coupled with 6.9% increase in free cash flow in 2013 enabling the company to continue returning cash to shareholders. In addition, Comcast has a trailing P/E of 19.60 and a forward P/E of 15.30 along with the earnings CAGR for next five years of 18.95%. Along with robust PEG ratio of 0.94, Comcast appears a promising long-term pick with being undervalued relative to its expected growth.
Comcast shares did not rise this year, still the company is well-positioned to reach new highs going forward since witnessing growth across the board. Additionally, the management is investor friendly along with the attractive valuation which makes Comcast a good pick for the portfolio.