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Summary

  • Comcast has been adding to its customer base at a rapid pace, placing itself in a solid position to drive long-term growth.
  • Comcast's focus on its Triple Play strategy has reaped rich dividends, with customers buying more products through cross-selling initiatives.
  • Comcast's illustrious customer base, along with a shareholder-friendly management and attractive valuation make it a solid long-term pick.

Media and technology company Comcast (NASDAQ:CMCSA) hasn't set the Street on fire of late, as its shares are down more than 4% in 2014. However, with Comcast's first-quarter results due out on April 22, the company can provide some momentum to its stock price performance with solid results. Comcast turned in a mixed performance last time with a revenue beat, but faltered on earnings. However, the company is growing at a pretty solid pace, and looks well-positioned to deliver growth in the long run.

Let's take a closer look at what could work in Comcast's favor in the long run, and why investors should consider buying the stock.

Strong momentum

Comcast is positive about its outlook, with most of its segments, such as cable communications, cable networks, broadcast television, filmed entertainment, and theme park witnessing robust growth in sales. Last year, the cable communication segment, represented by the XFINITY brand, which includes video, high-speed internet, and voice services for residential and business customers, reported some solid growth numbers.

Comcast added approximately 1.8 million customers in 2013, a net addition of 17% compared to the previous year. It also added 649,000 video, high-speed internet, and voice customers in the fourth quarter of 2013, an increase of 29% over the same quarter last year. Thus, with such a strong customer base, Comcast has a strong chance of performing well in the coming quarters.

Comcast expects its positive momentum to carry on in fiscal 2014, driven by its Triple Play strategy. The Triple Play strategy consists of television, internet, and phone, and all three have witnessed strong and robust growth over the last one year, as customers are availing multiple products.

Key growth drivers

Comcast's 79% of video customers availed themselves of the additional two products, and 44% of its new customers took all the three services in the fourth quarter, according to management. The company, on the whole, added 1.3 million new customers in the fourth quarter, marking eight consecutive quarters of adding more than 1 million new customers. Comcast is now focused on increasing the value of the Triple Play strategy through definite and concrete strategic investments to drive more growth.

In addition, Comcast had launched X1 boxes and wireless gateway services as part of the Triple Play strategy in the second half of 2013. It is offering improved and value-added services in X1 boxes, with a wide range of content choices. In addition, the company is seeing strong customer interest in its video on demand (VOD) service. Going forward, Comcast plans to accelerate its spending on X1 boxes, as it is now available in all markets, and the company intends to reach more customers.

On the other hand, Comcast is planning to deploy additional wireless gateways that will enrich customer experience, as it is looking to provide the fastest in-home Wi-Fi experience and is increasing network capacity.

Since the merger of Comcast and NBCUniversal in 2011, its cable network segment has produced sequential and substantial increase in sales. In addition, Comcast recently signed an agreement with Netflix (NASDAQ:NFLX) to grant direct access of its broadband network that will improve speed and reliability of Netflix's video-streaming customers. Through this initiative, Comcast will certainly improve its profitability, as Netflix's customers will see good speed and faster viewing, leading to more subscriptions.

Fundamental take

Moreover, since Comcast is seeing strong momentum across all its businesses, it has increased its dividend by 15%. The company has also increased its stock repurchase program authorization to $7.5 billion for the next couple of years.

Thus, investors can enjoy an increase of over 30% in capital returns due to these moves. Also, Comcast's operating cash flow increased 8.3% and free cash flow was up 6.9% in 2013, which enables the company to continue returning cash to shareholders. In addition, Comcast currently trades at a trailing P/E of 19.60 and a forward P/E of 15.30, with the earnings CAGR for next five years pegged at 18.95%. Combined with a PEG ratio of 0.94, Comcast looks undervalued relative to its expected growth, making it a solid long-term pick.

Conclusion

Comcast shares haven't taken off this year, but the company is ready to scale new highs going forward, as it is seeing growth across the board. In addition, an investor-friendly management and attractive valuation makes Comcast a stock that one should definitely have in the portfolio.

Source: Comcast Is Ready To Break Out Of Mediocrity