Previewing Comcast's 4Q Earnings

| About: Comcast Corporation (CMCSA)

Comcast will report 4Q06 results tomorrow before the open. Management will host a conference call for investors at 8:30 a.m. EST.

We expect Comcast to report strong 4Q06 operating results. We think we will see another acceleration of Comcast's core revenue growth rate in 4Q06, thanks to further traction from voice and the shift to a bundled sales model. Our estimate calls for RGU net adds to once again be 60% to 70% higher than a year ago, and revenue to grow 12%, a full 200 basis points faster than its growth rate at the beginning of the year.

Results are likely to be skewed by the recent spate of acquisitions. We are forecasting revenue of $7.08 billion in 4Q06, EBITDA of $2.69 billion and EPS of $0.26, which compares to consensus of $7.11 billion, $2.66 billion and $0.24, respectively. For the year we expect revenue of $26.2 billion, EBITDA of $10.5 billion and EPS of $1.16. Recent integration of acquisitions has clouded the picture making forecasting more difficult.

Investors must look at the operating results to evaluate performance. We expect them to be pleasantly surprised. We expect a 70% jump in RGU net adds to 1.42 million from 840,000 a year ago, with positive comparisons in every product category (basic, digital, HSD and voice). We think this will drive a 12% increase in APRU per sub, which should tract to total revenue and EBITDA, as operating margins are likely to be flat given recent acquisitions.

We expect stronger guidance for 2007 than we got for 2006. We expect 2007 guidance for revenue growth of 12%, EBITDA gains of 14% to 15% and FCF growth of 30%. Operating leverage should be realized by bringing the margins at recently acquired assets up to the level of the core franchise. FCF gains will come from flat- to down-capital expenditures. Our estimates for 2007 are from revenue of $29.4 billion, EBITDA of $11.8 billion and EPS of $1.50.

Cable and Satellite stocks are fully valued for the most part. The Cable and Satellite stocks enjoyed extraordinary gains in 2006, outperforming the S&P 500 by 535%. We think upside is possible in 2007, but of a much more modest magnitude. Given Comcast's accelerating fundamentals and strong financial characteristics, as well as its defensive qualities, we think among the Cable and Satellite stocks it offers the clearest path to upside in 2007 and the least amount of downside risk.

We reiterate our BUY rating and $49 target for CMCSA. We value CMCSA with a DCF model of future unlevered free cash flow [UFCF]. Our DCF employs a 2010 terminal year and discounts unlevered free cash flow [UFCF] back to present at a calculated cost of capital that is based on each company's financial profile. We also consider EBITDA, P/E and FCF multiples, as well as per sub and per RGU values. We view shares of CMCSA as modestly risky.

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