Comcast reported strong performance in 2022 and still has the potential to be a strong investment opportunity going forward. This is due to Comcast’s strong earnings results across all divisions, potential for low broadband subscriber growth and their historically low forward PE ratio. In my opinion, I am maintain my rating of 4.5/5 Stars for business quality for Comcast and have updated my valuation rating to 4/5.

• All of Comcast’s divisions had moderate earnings growth over the last year
• Cable business provides still provides essential high-speed internet services in an industry with limited competition due to high infrastructure costs
• Comcast is well positioned to provide higher internet speeds as the demand for faster internet increases
• Stake in Hulu has the potential to provide a significant cash infusion into the company

• Significant debt due to infrastructure costs and Sky acquisition (still lower debt than some competitors)
• Experiencing slower subscriber growth than expected

Comcast remains a very high-quality company:

One of major highlights of Comcast’s latest earnings report is their increased adjusted earnings from all of their divisions:

The company reported that their adjusted EBITA grew by about 5% over the year. The majority of this growth came from their primary cable business. Their cable business benefited from their rolling out for their multi-gig broadband speeds to support faster internet speeds. Comcast’s cable business also grew wireless customer line (best year to date) and had small growth in their broadband subscribers:

Part of NBCUniversal’s strong performance came from growth in theme parks and success with their studio division. In fact, NBCUniversal studio ranked #2 in worldwide box office for the year. Peacock paid subscribers also doubled in 2022, though Peacock is still losing Comcast money. Sky also had significant growth in customers, though Comcast recorded a $8.6 billion non-cash impairment charge on Sky last year.

In terms of quality, I am maintaining my rating of very high quality (4.5 out of 5 stars). Despite the challenging economic environment in 2022, Comcast delivered strong growth across every division. This further supports their ability to deliver large and dependable cash flows from their primary businesses. The company still boasts excellent profitability (gross, operating and net margins), as well as high return on equity compared to some of their peers reflecting management’s disciplined spending. Comcast also has also just increased their dividend for 15 years straight and I believe the dividend is sustainable due to the management’s focus on dividend growth and their low 30% payout ratio.

My main concern with Comcast remains their large long-term debt, which now exceeds $93 billion. Additionally, Comcast’s available cash at the end of 2022 has decreased by almost 50% compared with the end of 2021. However, Comcast still has an excellent credit rating of “A-” from FitchRatings and has the ability to sell its minority stake in Hulu to Disney for at least $27.5 billion to help further improve their balance sheet.

Comcast is still at an appealing valuation:

Since first covering Comcast, the company’s stock has increased by nearly 17%. I believe that a large part of this increase came from Comcast’s ability to drive growth across all their divisions and their small increase in Broadband subscribers. However, despite this recent increase in stock price, I believe that Comcast is still a buy in my portfolio. I outline some of my reasons below:

1) The company is still historically undervalued: The adjusted PE ratio for Comcast has typically been over 15X since 2016. Comcast’s average adjusted PE ratio sharply fell after challenges with driving subscriber growth. Although the price has recently recovered, the forward PE ratio is still around 10X which is lower than the average:

2) Comcast increased broadband subscriptions: The latest broadband report showed that Comcast increased broadband subscriptions by about 0.7% (slightly below my estimate of 1%).

3) Internet access will likely not only remain critical for US customers, but also that the demand for faster internet (from higher definition streaming, video games and video calling to name a few) will increase. Comcast is also well positioned to provide faster internet streaming to its customers via their DOCSIS technology.

Based on this reasoning, I have decreased my estimate for broadband subscriber growth from 1% to 0.75% per year over the next five years. Let’s also assume that earnings from the cable division will also grow at 0.75% per year. I am also maintaining my assumption that there will be no growth in Comcast’s NBCUniversal or Sky division. Finally, I will assume that Comcast will return somewhere between $5-6 billion in share repurchases each year at the current price over the next few years (for comparison, Comcast has $13 billion in share repurchases in 2022). This hypothetical scenario would lead to about a 3.5% growth in earnings per share (EPS) over the next few years:

If these assumptions are correct, then at the current share price Comcast could have the potential to deliver over 12.5% compounded return over the next five years. Interestingly, my estimates for 2023 are on the higher end of analyst estimates on Yahoo finance, though my 2024 estimate are below their current average estimates. Analysts on Yahoo finance are also expecting higher long-term growth, with their current estimate being about 7% growth per year. Based on this analysis, my opinion is that Comcast should receive a 4 out 5 stars for valuation.

Risks:

Investing in Comcast does come with a number of potential risks. Some risks include that it is possible for the government to increase regulations on broadband providers which could limit Comcast’s future profitability. Other internet or cellular providers could also compete for internet subscribers. There is also a trend to “cut the cord” on TV subscription which could hurt Comcast’s revenue if enough consumers follow suit.

Comcast has also received criticism in the past for poor customer service, being anti-union and for spending significant amounts of money on lobbying. Although many of these criticisms have improved since Comcast was awarded “The Worst Company in America” from the Consumerist, future issues could degrade the reputation of the company which can adversely affect their businesses.

Final Thoughts:

Taken together, I was very pleased with the latest earnings release from Comcast. Their full year EPS and dividend raise were in-line with my expectations, with EPS growing by about 12.7% and the dividend raising by about 7.4%. Sky and NBCUniversal strong performance were pleasant surprises and the broadband subscribers still managed to grow, though a bit lower than expected. Comcast also took advantage of the price decline, purchasing a significant $13 billion of stock.

I have slightly adjusted my price points based on the slower subscriber growth, though I believe that Comcast is still a high-quality company at a good price. Thus, for my portfolio, I plan to continue to add to my Comcast position under $40.55.

Disclaimer:

I currently own stocks mentioned in this article including Comcast at the time of writing this post. Additionally, I am not a financial advisor and I am not providing financial advice. I am sharing my thoughts and processes of selecting stocks for my personal portfolio for fun and entertainment purposes only.

All information provided here is on a “best of my knowledge” basis and may be incorrect. All estimates and models are guesses and may not be accurate. Stocks mentioned here may have additional risks not covered in the post.

Investing in the stock market comes with serious risk of losing money, please consult a professional financial advisor and do due diligence before investing.