We're Big Fans Of Comcast's Cash-Flow Generation

| About: Comcast Corporation (CMCSA)

Comcast (CMCSA) reported stronger than expected second quarter earnings Wednesday afternoon. The firm earned $0.50 per share, up 35.1% year-over-year and slightly higher than the consensus expectation. Revenue grew 6.1% to $15.2 billion, which was in-line with the Street's expectations. The firm also announced that it expects to break-even on the Olympics (NBCUniversal), better than the loss it previously had speculated. On the heels of the strong results, we continue to believe shares are fairly valued.

Comcast's traditional Cable Communications continues to grow and generate copious cash flow. Video revenue, Xfinity and other cable TV products, grew 2.8% to $5 billion, while High-Speed Internet revenue grew 8.9% to $2.4 billion. We're big fans of the firm's Video and High-Speed Internet businesses because both are either monopolies or duopolies in their respective markets. Further, we believe that both services have become so sticky and important to consumers that Comcast will be able to effectively raise prices year after year without seeing too much volume-related weakness. Since TV can be replaced (in part) by Internet streaming, we think High-Speed Internet could eventually surpass Video in terms of importance. The segment generated $4.1 billion in operating cash flow on $9.9 billion in sales during the second quarter, translating to an impressive cash flow margin of 41.4%. The company added 138 thousand net subscribers in the Cable segment.

NBCUniveral did not perform quite as well. The firm generated $982 million in operating cash flow, down from $1.2 billion during the same period last year. Revenue for the entire segment shrank 0.8% to $5.4 billion. Cable networks and theme parks performed relatively better, as revenue in each segment grew over 3%. We think theme park revenue increases, though small, reflect positively on domestic travel and the broader economy as a whole. However, the segment's second and third largest businesses, broadcast television and filmed entertainment, fell 9.1% and 1.8%, respectively. Operating cash flow in the filmed entertainment segment was -$86 million due to the poor performance of Battleship, which incidentally hurt Hasbro (HAS).

Though NBCUniversal may not have performed as well as Cable Communications, the firm still had a reasonably strong quarter, generating $1.5 billion in free cash flow (and $4.5 billion in free cash flow year-to-date). The company continues to repurchase stock and pay down its substantial debt load. Though there's a lot to like about Comcast's cash-rich business model, we think shares are fairly valued at current levels. Additionally, shares score a mediocre on the Valuentum Buying Index (our stock-selection methodology).

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.