Annotated article summary from this weekend's Barron's. Receive all our Barron's summaries by signing up here:
Comcast's Triple Play Could Win the Game by Jay Palmer
Summary: It's the largest cable-operator in the U.S., and a high-growth company with a bright future, but Comcast Corp.'s (CMCSA) shares aren't commanding respect from investors -- and that's just wrong, Barron's says. Earnings in 2006 more than doubled, while revenues jumped 18% -- while over the first half of this year earnings rose 54% as revenue climbed 31%. Analysts expect this growth to continue, forecasting earnings of $0.77 this year, $1.07 in 2008 and $1.41 in 2009, which would represent a four-year compound annual growth of nearly 24%, far above the market as a whole. Yet, while shares have performed well over the past decade, this year they are trailing the indices, closing last week at $25.48. "What excites me is that this company has so much money to spend on its own future. They will have $4B to spend between now and 2009 on operations that offer a very high return... The potential is staggering and largely ignored in the stock," says Tom Russo, whose firm holds 10M Comcast shares. Merrill Lynch's Jessica Reif Cohen calls the stock "substantially undervalued," while Bernstein's Craig Moffett says it's "one of the 15 cheapest stocks" in the S&P 500; he sees shares at $40 in the next 12 months. Following its purchase of 1.7M video subscribers from Adelphia and Time Warner, Comcast now serves 24 million homes -- a 28% cable market share. But that's not necessarily where the value lies: The company's other areas of business are high-speed broadband Internet service, phone service provided over cable, programming and a small operation that aims to provide the so-called triple play (cable, Internet and phone) to small businesses. Statistics on triple-play are known as revenue-generating units, or RGUs, and by this measure Barron's says Comcast has been doing "stunningly well" as RGUs climbed to 1.6 million last quarter from 553,000 two years ago. Russo says the competition threats of satellite-based triple-play services are "greatly exaggerated," and that when investors finally realize this Comcast shares will "soar."
Earnings call transcript: Comcast Q2 2007