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by Renee O'Farrell

On May 2, 2012, Comcast Corp. (CMCSA) announced its first-quarter performance. The company reported earnings of $0.45 a share over estimates of $0.42 a share, beating expectations by over 7%. Its revenues also did not disappoint. Comcast reported $14.9 billion in revenue over analyst estimates of $14.43 billion. Compared to the same quarter last year, the company outpaced its earnings per share by 25% and its revenue by 12%.

According to the Associated Press, Comcast beat analyst expectations on the strength of its Super Bowl advertising and its increasingly popular broadband service. The company also had its recent acquisition of a majority stake in NBC Universal to buoy its results. The stake accounts for roughly one-third of Comcast's revenue.

While Comcast's performance seems encouraging at first glance, shares in the company were down over 4% in pre-market trading. Comcast's share price went from $30.60 a share at close to barely over $29 a share after reporting its quarterly performance. The issue appears to be an eroding consumer base. Comcast lost 37,000 cable subscribers in the first quarter, which is roughly the same as this quarter last year, and while it was able to add 439,000 Internet subscribers (its best quarterly result in four years), its new voice subscribers fell 37% from a year earlier to 164,000.

Last year, Comcast earned $1.58 a share, beating analysts' consensus of $1.52 a share. Going forward, analysts expect the company to earn $1.88 a share this year and $2.19 a share next year. At its current trade price of $29 a share, this means that Comcast is priced at roughly 13.40 times its forward earnings. In comparison, Comcast is trading at a discount to its peers, which average a forward price-to-earnings ratio of 16.10. Comcast also pays a $.65 dividend (2.10% yield) on a payout ratio of just 36%. The company has increased its dividend regularly since 2008.

Comcast, which is the No. 1 cable provider in the country, is a favorite amongst many of the hedge funds we track. Jean-Marie Eveillard's First Eagle Investment Management is a big fan (check out the fund's top picks here). Boykin Curry's Eagle Capital Management, Eric Mindich's Eton Park Capital, and Lee Ainslie's Maverick Capital are also fans of the company. Personally, I have to agree. I like its numbers and, while the company is still in the process of reviving NBC (which has historically low ratings), Comcast seems to be on the right track. Plus, I like how it has hedged its bets. After all, there could easily come a day when people no longer use landlines or watch network television, but Internet services and movies are likely here to stay. Comcast is strong in both regards.

In contrast, many of its peers have struggled with the recent slowdown in the number of cable subscribers, and as a result are not positioned nearly as well. Rivals DirecTV (DTV) and Dish Network (DISH) do not offer Internet services. While they do have some options in place that allow customers to bundle cable services in with voice or Internet services, such as the agreement DirecTV has in place with Verizon (VZ), the difference is clear. DirecTV recently traded at $49.47 a share and, while priced low at just 9.28 times its forward earnings, is expected to earn as little as $4.44 a share next year (mean $5.33), compared to estimates of $4.38 a share this year. Plus, DirecTV does not pay a dividend.

Dish Network is trading at roughly $32 a share and also does not pay a dividend. The company is priced lower than Comcast, with a forward price to earnings ratio of 11.14 but analysts are not expecting much from the company going forward. While Dish brought in $3.39 a share last year, analysts predict the company will earn just $2.75 a share this year and $2.87 a share next year -- that is quite a difference.

Time Warner Cable (TWC) has stronger expectations. It is trading at over $81 a share and is expected to earn $6.89 a share next year, up from $5.63 this year and $4.56 last year. Also, it offers a $2.24 annual dividend (2.75% yield). This puts the company's forward price to earnings ratio at roughly 11.75 times its future earnings. However, Time Warner is positioned so well because, like Comcast, it is uses a much more diversified approach relative to its peers, offering cable, high-speed data and voice services. Time Warner is the second largest cable provider in the country. It is an attractive investment, but I prefer Comcast because it is so much more diversified and, to date, is succeeding at its varied activities fairly well.

Source: This Cable Company Is Succeeding With Diversification