Comcast (NASDAQ: CMCSA)
QVI Research Report | Updated Coverage | March 2023
Summary
Comcast spans the entire media spectrum, producing content at NBC Universal and then delivering content via Xfinity, Peacock, and Sky. Now that’s an empire.
Since QVI’s initial coverage of Comcast in January 2018, the Class A shares have outperformed its sector in total returns but underperformed the broader market.
Shareholder yields barely topped the Ten-Year Treasury; however, the crucial free cash flow yield is compelling.
Fundamentals and valuations are mixed, and downside risks are below average despite the typical debt leverage of a communications services provider.
Although Comcast still presents as a safe dividend-paying, fundamentally sound, high-value proposition, below-average risk defensive blue chip, its shares appear overbought or undersold by the market.
Premium subscribers: When referencing this research report, access your Quality Value Investing Glossary of Investing Terms and Metric Targets. Unless noted, all data presented is sourced from Seeking Alpha Premium as of the market close on March 3, 2023, and intended for illustration only.
Comcast Value Proposition
QVI Research Report’s value proposition section provides a brief synopsis of the company’s business model, major-exchange listing, stock symbol, market capitalization, and dividend-paying status. In addition, it defines the competitive advantages of a company’s products or services to its customers compared to the industry, including the stock’s historical performance vs. the sector and market.
Comcast Corporation Class A (NASDAQ: CMCSA) is a dividend-paying large-cap stock in the cable and satellite industry of the communications services sector. CMCSA was added to the QVI Concentrated Portfolio on January 10, 2018, at a split and dividend-adjusted $36.77 a share.
Comcast Corporation operates as a media and technology company worldwide. It operates through Cable Communications, Media, Studios, Theme Parks, and Sky segments.
The Cable Communications segment provides broadband, video, voice, wireless, and other services to residential and business customers under the Xfinity brand; and advertising services. The Media segment operates NBCUniversal’s television and streaming platforms, including national, regional, and international cable networks; the NBC and Telemundo broadcast networks; and Peacock, a direct-to-consumer streaming service. The Studios segment operates NBCUniversal’s film and television studio production and distribution operations. The Theme Parks segment consists of Universal theme parks in Orlando, Florida; Hollywood, California; Osaka, Japan; and Beijing, China. The Sky segment offers direct-to-consumer services, such as video, broadband, voice, and wireless phone services, and the content business operates entertainment networks, the Sky News broadcast network, and Sky Sports networks.
The company also owns the Philadelphia Flyers, as well as the Wells Fargo Center arena in Philadelphia. Comcast Corporation was founded in 1963 and is headquartered in Philadelphia, Pennsylvania, USA.
QVI’s value proposition elevator pitch for Comcast:
Comcast spans the entire media spectrum producing content at NBC Universal and then delivering content via Xfinity, Peacock, and Sky. Now that's an empire.
Performance vs. Sector and Market
The chart below illustrates CMCSA’s performance against the Communications Services Select Sector SPDR® Fund ETF (NYSE: XLC) and the SPDR® S&P 500 ETF Trust (NYSE: SPY) since QVI’s initial coverage of Comcast in January 2018.
For example, CMCSA has outperformed its sector in total returns but underperformed the broader market during the coverage timeframe. CMCSA topped the sector and the S&P 500 during the 2020-22 coronavirus pandemic, illustrating its status as a defensive stock.
Due Diligence Resources
For a more in-depth analysis of the all-important value proposition, visit Comcast’s investor relations webpage, and its most recent Form 10-K Annual Report submitted to the US Securities and Exchange Commission or SEC.
QVI’s value proposition rating for Comcast: Bullish.
CMCSA Total Returns vs. XLC and SPY
Comcast Corp (CMCSA) Total Return: +22.30%
Communications Services Sel Sect SPDR ETF (XLC) Total Return: +14.10%
SPDR S&P 500 ETF Trust (SPY) Total Return: +57.41%
Since January 10, 2018CMCSA Shareholder Yields
QVI Research Report’s shareholder yields section uncovers the equity bond rate of the company’s common shares. It aims to quantify the yields on earnings, free cash flow, and dividends to measure how the targeted stock compares to the prevailing yield on the 10-Year Treasury benchmark note.
Earnings and Free Cash Flow Yields
CMCSA’s earnings yield traded below the floor at 3.20%, as demonstrated in the below chart. However, at 7.67%, CMCSA’s free cash flow yield traded above the targeted threshold.
As inverse valuation multiples, the earnings and free cash flow yields suggest that CMCSA trades at a premium to earnings but at a discount to free cash flow. QVI will further explore valuation multiples later in this report.
Dividend Yield
Comcast offers a moderate forward dividend yield of 2.90%, supported by a conservative 29.59% payout ratio, thus indicating a safe dividend rate with room for annual increases.
CMCSA yielded 3.15% from an annual payout of $1.16 on a split- and dividend-adjusted cost basis of $36.77 per share on January 10, 2018, the date of QVI’s initial stock coverage. Thus, our yield-on-cost basis was flatlining at +25 basis points [bps] above the forward yield.
Average of Shareholder Yields
Quality Value Investing takes the average of the three shareholder yields to measure how the stock compares to the prevailing yield of 3.97% on the 10-Year Treasury benchmark note. For example, the average shareholder yield for CMCSA was 4.59% or +62 bps above the 10-Year and 4.67% or +70 bps above the Treasury yield when using the January 2018 yield-on-cost basis.
QVI’s shareholder yields rating for CMCSA: Neutral.
CMCSA Shareholder Yields
Comcast Corp (CMCSA) Price: $37.23
Comcast Corp (CMCSA) Earnings Yield: 3.20%
Comcast Corp (CMCSA) Free Cash Flow Yield: 7.67%
Comcast Corp (CMCSA) Dividend Yield: 2.90%
One-Year TrailingComcast Fundamentals
QVI Research Report’s fundamentals section measures the performance strength of the company’s senior management by analyzing revenue growth, net profit margin, and returns on equity and invested capital.
Revenue Growth and Net Profit Margin
Per the below chart, Comcast had positive three-year annualized revenue growth of 0.72%, underperforming the 2.16% median growth of the communications services sector.
Nevertheless, Comcast had a trailing three-year double-digit net profit margin of 11.08%, tripling the sector’s median net margin of 3.38%.
Returns on Equity and Invested Capital
Comcast’s management was producing a trailing three-year return on equity or ROE of 14.11%, slightly below the targeted threshold but far outperforming the sector’s median ROE of 3.62%.
Stock buyback programs often elevate ROE. For example, Comcast’s board of directors had authorized repurchases of up to $20 billion effective September 2022.
At 6.21%, Comcast’s three-year return on invested capital, or ROIC, is far below the threshold but almost doubles the sector’s median ROIC of 3.57%, indicating that its senior executives are competitive capital allocators.
On the contrary, Comcast’s ROIC does not cover its weighted average cost of capital or WACC of 7.52%. (Source of WACC: GuruFocus).
Comcast’s management performance justifies investor head-scratching from its positive yet minuscule revenue growth and sector-beating double-digit net profit margin countered by returns on equity and invested capital below the QVI thresholds.
QVI’s fundamentals rating for Comcast: Neutral.
CMCSA Returns on Management
Comcast Corp (CMCSA) Revenue Growth: 0.72%
Comcast Corp (CMCSA) Profit Margin: 11.08%
Comcast Corp (CMCSA) Return on Equity: 14.11%
Comcast Corp (CMCSA) Return on Invested Capital: 6.21%
Three-Year Trailing MedianCMCSA Valuation, Risks, and Investment Thesis
Next, QVI dives into the valuation multiples, downside risks, potential catalysts, and overall investment thesis of Comcast Corporation (CMCSA). Let’s dig further after reading the required disclosures and background information.
Disclosure: I/we have a beneficial long position through direct ownership of CMCSA shares in our family portfolio. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Substack paid subscriptions). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Quality Value Investing by David J. Waldron’s primary ticker research reports are for informational purposes only. The accuracy of the data cannot be guaranteed. Narrative and analytics are impersonal, i.e., not tailored to individual needs nor intended for portfolio construction beyond his family portfolio, which is presented solely for educational purposes. David is an individual investor and author, not an investment adviser. Readers should always engage in their own research or due diligence and consider (as appropriate) consulting a fee-only certified financial planner, licensed discount broker/dealer, flat fee registered investment adviser, certified public accountant, or specialized attorney before making any investment, income tax, or estate planning decisions.
About the Author
David J. Waldron is the founder and contributing editor of Quality Value Investing and author of the international-selling book, Build Wealth With Common Stocks. David’s mission is to inspire the achievement of his readers’ financial goals and dreams. He received a Bachelor of Science in business studies as a Garden State Scholar at Stockton University and completed The Practice of Management Program at Brown University. David and his wife, Suzan, reside in historic South Central Pennsylvania, USA.
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