Seeking Alpha
Long/short equity, special situations, value
Profile| Send Message|
( followers)  

Shares of Comcast Corporation (CMCSA) rose 3.3% in Friday's trading session. The provider of high-speed internet and voice services announced its third quarter results before the market open.

Third Quarter Results

Comcast reported third quarter revenues of $16.54 billion, up 15.4% on the year. The 2012 London Olympics generated $1.2 billion in revenues. Excluding the contribution from the Games, revenues rose 7.1% on the year. Analysts expected Comcast to report revenues of $16.07 billion.

Operating income rose 15.4% as well to $3.05 billion. Net earnings rose to $2.98 billion with earnings per share coming in at $0.78 per share.

Earnings were boosted by one times items including a $0.20 per share gain of the sale of SpectrumCo of wireless licenses, and a $0.12 per share gain of NBCUniversal's interest in A&E Television Networks. Excluding one-time items, earnings per share rose 39.4% to $0.46 per share. Adjusted earnings of $0.46 were in line with analysts expectations.

During the third quarter, Comcast repurchased 22.9 million shares for $750 million. Year to date, the company has repurchased $2.25 billion of its own shares, with another $4.25 billion available under its share repurchase authorization.

CEO and Chairman Brian L. Roberts commented on the results, "The third quarter continues our momentum. Cable's results show real strength in every part of the business, producing sustainable and profitable growth while we expand our product offerings, deliver more innovation and continue to transform the customer experience. NBCUniversal's results highlight the strong performance of the Olympics and steady progress in its businesses as we invest to build value. The London Olympics exceeded all our expectations and our entire company contributed to their success, proving how effective we can be when we bring together our unique assets and capabilities."

Segmental Information

Revenues rose across all divisions of Comcast.

Cable communication revenues rose 6.9% to $9.98 billion. Video revenues rose 2.7% to $5.02 billion despite the fact that the company lost 117,000 customers during the quarter, ending with 22.0 million subscribers.

High-speed internet revenues were up 8.8% to $2.40 billion, driven by a net 287,000 subscriber addition to 19.0 million customers. Voice revenues were up 1.5% to $895 million. Comcast net added 123,000 customers to 9.8 million. Business services revenues rose 33.6% to $621 million and advertising revenues rose 23.5% to $607 million.

Revenues for NBCUniversal rose 31.2% to $6.8 billion, driven by a $1.2 billion revenue contribution of the 2012 London Olympics. Excluding the contribution of the Olympics, revenues were up 8.3% on the year. Revenues consequently rose sharply in the broadcast television segment, and growth in the "filmed entertainment" revenues rose 23.6% as well. A strong performance of the movies "Ted" and "The Bourne Legacy" boosted revenues.

Valuation

Comcast ended its third quarter with $10.3 billion in cash, equivalents and investments. The company operates with $38.6 billion in short and long term debt, for a sizable net debt position of $28.3 billion.

For the first nine months of 2012, Comcast generated revenues of $46.6 billion. The company net earned $6.1 billion, or $1.72 per diluted share. Full year revenues could come in at $62 billion. Full year net income excluding one-times could reach $5 billion in 2012.

The market currently values Comcast at around $100 billion. This values the firm at 1.6 times annual revenues and 20 times normalized earnings.

Comcast currently pays a quarterly dividend of $0.16 per share, for an annual dividend yield of 1.7%.

Investment Thesis

Year to date, shares of Comcast have risen an incredible 60%. Shares started the year at $24 and continuously gained ground to levels approaching $38 at the moment.

Over the past five years, shares of Comcast have risen some 75%. Shares traded as low as $13 during the crisis in 2009. Shares traded around the $20 mark until the end of 2011, before almost doubling over the past year. Between 2008 and 2012, Comcast has aggressively boosted its annual revenues from $34.4 billion in 2008, to an estimated $62 billion for 2012. Net income is expected to double from $2.5 billion to an estimated $5.0 billion in 2012, on a normalized basis.

Shares of Comcast have risen sharply over the past year. This seems surprising given the sizable net debt position, increased price-earnings ratio and relative low dividend yield. Yet, investors are optimistic about the business prospects as Comcast has a very strong cash flow generation capability. The firm's cash position increased to over $10 billion over the past quarter, giving the company sufficient room to boost dividend payments and pay off debt.

While I like Comcast's cash flow generation business, I remain on the sidelines. I see few triggers for further short term gains, after the rally this year.

Source: Comcast - Strong Cash Flow Generation Leaves Room For A Dividend Hike