Business overview
Comcast (CMCSA, Financial) is the largest provider of cable and broadband services in the U.S. with over 31 million broadband subscribers and nearly 19 million video subscribers. Comcast also owns NBC Universal (NBCU), which includes the NBC TV networks, Telemundo, MSNBC, USA, SyFy, Bravo, E!, CNBC, the Peacock streaming service, Universal Films and Universal Theme Parks. In addition to these assets, Comcast also owns Sky Group, a U.K.-based media and telecom conglomerate.
Comcast is a media and telecom giant with over $116 billion in annual revenues and 34.2 million customer relationships in the cable and broadband business. The company has five reportable business segments: Comcast Communications, NBCU Media, NBCU Studio, NBCU Theme Parks and Sky Group.
Comcast Communications hosts the cable and broadband business and associated operations. This includes broadband, video, voice, wireless and other services to residential customers in the U.S. under the Xfinity brand. Advertising and services to businesses are also included in this segment.
NBCU Media includes broadcast networks as well as cable networks include CNBC, MSNBC, USA Network, Telemundo, the streaming service Peacock and many others.
NBCU Studio is comprised of film and television production operations and related distribution.
NBCU Theme Parks consist of Universal parks located in Florida, California, Japan and China.
Sky Group is a leading media and telecom conglomerate in Europe with operations in the United Kingdom, Ireland, Germany, Austria, Switzerland and Italy.
Financial review
Comcast reported record-breaking results in 2021 with total revenue increasing 12.4% to $116.4 billion and net income increasing 24.8% to $15 billion.
On a segment basis, Cable Communications' adjusted Ebitda increased 11.2% and adjusted Ebitda per customer relationship increased 6.7%. Total broadband (high-speed internet) customer net additions were 1.3 million. Wireless customer net additions were 1.2 million, which was the highest result since this service was launched in 2017.
NBCUniversal's adjusted Ebitda increased 6.0% to $5.7 billion, including Peacock losses. As the company builds out its comprehensive streaming service with content and technology, the service on a stand-alone basis has been losing money. Losses in 2021 were approximately $1.7 billion and for 2022 the company expects a loss of $2.5 billion due to haevy content development. Peacock monthly active accounts in the U.S. reached 24.5 million at the end of 2021.
Theme Parks' adjusted Ebitda increased $1.7 billion to $1.3 billion. This segment experienced a loss in 2020 due to the negative impacts of the Covid-19 pandemic.
Free cash flow and capital allocation
Comcast has almost always been a strong generator of free cash flow throughout much of its history. Capital allocation priorities are 1) invest organically to maintain profitable growth, 2) maintain a strong balance sheet and 3) return capital to shareholders.
The company returned $8.5 billion of capital to shareholders in 2021, $4 billion through share repurchases and $4.5 billion in dividend payments. The company has increased its dividend for 14 years from $0.125 in 2008 to $1.08 in 2022.
The company’s leverage ratio was reduced to 2.4 times on a trailing basis for 2021, which was down from 2.9 times in 2020.
Valuation
Analysts' estimates call for earnings per share of $3.55 for 2022 and approximately $3.97 for 2023. The company is selling at a forward price-earnings ratio of 13.3 using current year earnings estimates. The forward enterprise-value-to-Ebitda ratio is below 8.0 based on estimated Ebitda for 2022.
The current dividend yield is 2.31% and represents a payout ratio of approximately 30%. Although the cable business can be capital intensive, one can expect continued increases in dividends from Comcast based on its history.
Guru trades
Gurus who have entered or added to positions in Comcast recently include Steven Romick (Trades, Portfolio), John Hussman (Trades, Portfolio), Jim Simons (Trades, Portfolio)' Renaissance Technologies, Andreas Halvorsen (Trades, Portfolio), Charles Brandes (Trades, Portfolio), Wallace Weitz (Trades, Portfolio), Ray Dalio (Trades, Portfolio), Tom Gayner (Trades, Portfolio) and Daniel Loeb (Trades, Portfolio).
Conclusion
Comcast has a strong track record of steady growth and shareholder returns and appears to be undervalued at this time, by my estimates. Growth in high-speed internet additions should continue, but perhaps not at prior growth rates. In addition, a full recovery in the theme park business will add to cash flow growth rates this year and next.
