Comcast: Is This Cable Company Worth Investing In?

| About: Comcast Corporation (CMCSA)

Comcast (CMCSA) has been rapidly improving its network over the past few years. Recently it increased its maximum speed, called Extreme 505, for residential broadband service by offering downstream speed of 505 Mbps, or Megabits per second, up from 305 Mbps and upstream speed of 100 Mbps up from 65 Mbps. Comcast offers the speed upgrade for $300 a month, same as it was for 305 Mbps. It has limited the access to this service to some markets such as Philadelphia, Boston, Hartford, Baltimore, and Richmond. The company is planning to expand its service to other markets by determining customer's interest in the future. Comcast has the largest fiber-optic network with around 140,000 miles across the U.S.

The broadband market in the U.S. is rapidly increasing due to growing need for speed and connectivity. Also, the increased use of smartphones and other web-enabled devices such as tablets in the U.S. has led to an increase in Internet usage. Around 56.4%, or approximately 180 million, people in the U.S. are smartphones users, and the figure is expected to grow up to 70% by 2015.

Comcast seems to be catching up with the upgraded speed offered by Verizon Communications' (VZ) FiOS Internet service with a speed of 505 Mbps downstream and 100 Mbps upstream for $299.99 a month. Comcast competes head-to-head with Verizon. Currently Verizon provides FiOS service to around 18 million homes in 12 states in the U.S. The company plans to expand its FiOS footprint by next year. Also, Cablevision Systems (CVC) provides faster speed to its residential Optimum Online broadband customers with no extra charges. The company offers this service under different plans -- Optimum Online, Optimum Online Ultra 50 and Optimum Online Ultra 101. Recently it increased its upstream speed from 15 Mbps to 35 Mbps and offers 101 Mbps downstream speed for its "Optimum Online Ultra 101 tier" for an additional $55 month.

On the other side, Google's (GOOG) new roll out "Google Fiber" offers 1GB Internet service for $70 a month. It plans to offer this service in Austin, Texas, Utah, and other regions, but still it has limited reach. Google isn't clear on how many markets it will offer this service. For now, it doesn't pose a threat to, but Comcast may face a tough competition if Google enters in other markets in the future.

In the second quarter of this year, Comcast added 187,000 new broadband subscribers, a 20% year over year growth. The company reported revenue of $2.56 billion, 8% year over year growth from its high speed Internet division in the second quarter of this year. For now, we assume 8% growth to be constant based on its past few years growth, we estimate revenue of $5.07 billion for this year, up from $4.7 billion in the previous year. We expect the new Internet speed should attract more customers, enhancing its customer base. In addition, with a wide coverage area, we expect the high speed Internet segment to generate higher revenue in the future.

Theme park Shows Strength

Comcast's Universal Studios Hollywood theme park segment reported revenue of $546 million in the second quarter of this year, a growth of 1.1% year over year. The number of visitors in the parks and their spending mainly drives this business. Comcast raised its one-day tickets price from $89 to $92 in the first half of this year. Single-day tickets that cover admission for both Universal's theme parks, Universal Studios Florida and Universal's Islands of Adventure increased from $124 to $128. The raised ticket prices didn't reflect in the second quarter's revenue, but we expect that the theme park will make additional profits over the coming quarters. We expect Comcast to make more profit in the fourth quarter, for special events such as Halloween and Christmas are expected to attract more visitors.

The company is making continuous efforts to expand and bring in new rides that will attract more visitors. It is gaining popularity through its existing rides, and it recently added Transformers- The Ride 3D, which should attract more visitors. We consider the above factors as growth prospects since they generate major revenue for this segment and are expected to hold the key to continued growth and greater profits. For now, we assume the previous year revenue growth of 6% to be constant, so revenue generation for this year will be $1 billion up from $951 million in the last year. With the initiatives taken by Comcast, we believe that the company will make huge profits in the coming quarters.

Peer analysis


PEG ratio

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In terms of profit margin, Comcast's profit margin of 10.62% indicates its pricing and cost strategies are strongly controlled compared to Verizon and Cablevision 1.32% and 3.46% respectively. Also, a higher ROE is considered to be better, indicating Comcast is a better option for investment over its peers. A PEG close to 1 or less than 1 is always better. If we compare the companies' PEG ratios, Comcast has the lowest PEG ratio compared to its peers.


As discussed above, we expect the two fundamentals to drive growth for Comcast in the coming quarters. The demand for high speed Internet is increasing, and Comcast will attract more customers with its upgraded Internet speed. Additionally, the theme park should continue to bring in revenue. As the Universal Studios is a favorite destination for family vacations, we expect the number of visitors to increase. Looking at the fundamentals and valuation metrics, Comcast is an attractive option for investment compared to its peers.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Fusion Research is a team of equity analysts. This article was written by Shweta Dubey, one of our research analysts. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.