Comcast: Good Near-Term Prospects

| About: Comcast Corporation (CMCSA)
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As the largest provider of video, high speed internet, and voice services, Comcast (NASDAQ:CMCSA) has been in the cable operating business for quite a while. The 49% additional stake it bought in NBCUniversal last year made it 100% owner of the company. With channels such as CNBC, MSNBC, and Bravo under its belt the company generates its revenues from monthly subscriptions, channel advertising, and pay per view programs.

A look At the Past

Excluding the Impact of the 2012 Olympics Comcast's Revenue Jumped 5.6'

During the 3rd quarter that ended in 2013, Comcast's consolidated revenue declined by 2.4% to $16.2 billion compared to 2012's 3rd quarter results. What must be noted is that Comcast's seasonal revenue results are different from those generated on a consistent basis. Events such as political campaigns, the Super Bowl or the Olympics temporarily boost revenues in the quarter in which they are reported. Knowing that, the 2012 Olympics boosted 3Q12's revenue and if we exclude the impact ($1.2 billion), revenue for the company actually increased by 5.6%. Higher theme park, cable, and film revenues contributed towards the rise.

The cable communication segment directly owned by the company makes up more than 60% of the company's revenue. During the last quarter, the segment improved by 5.2% bringing in $10.5 billion in revenue with revenue per video customer increasing by more than 6.9% to $161 per month.

Source: Presentation

The company's programming costs have significantly declined (16.4%) along with its depreciation expense. The total net effect has resulted in an increase in the consolidated operating income by 12% to $3.4 billion despite revenue decline. This was due to costs that were no longer present after the completion of the 2012 Olympics. The company's costs could have declined further if they excluded the $74 million payment that was made for terminating a qualified pension plan that provided benefits to former AT&T employees.

The reported EPS showed a decline of 16.7% to $0.65 during the last quarter. However, the comparison included a $0.32 per share gain during 3Q12 due to the company's sale of SpectrumCo's wireless spectrum licenses as well as an interest in the A&E Television Network. Excluding these non-recurring events, Comcast's EPS increased by 27%. My estimated increase also excluded last quarter's $0.11 gain associated with the company's sale of Clearwire otherwise the increase in EPS would have been 41.3%.

The company has been affected by comparability issues which were due to seasonal events during the third quarter of 2012. By excluding such events we can see that Comcast has performed relatively well.

Recent Changes

Increase in Television Subscribers after 26 Quarters

The company is on its turning point as for the first time after 26 consecutive quarters, Comcast is going to report an increase in pay-television subscribers. The number, which will be announced during the 4th quarter, is potentially the result of changes Comcast has made in its cable box. The X1 platform, an internet-based design effective in navigating channels in a simpler and more "high tech" manner compared to past models, is boosting the company's popularity and although the model exhibits some glitches minor changes in the future through updates will make it ready for prime television.

Internet integration is a must for upcoming technological drive and spending R&D funds to promote this feature will allow Comcast to be more competitive in the future.

The company is also near the launch date of its mobile app, Xfinity TV that will bring television to mobile devices at a more integrated level. Consumers will have to rely on the X1 platform to watch their favorite programs. The app is supposed to launch late this year although a trial version has already been posted in the Apple iTunes store.

On an industry level, Comcast has seen more growth in revenues and margins than its peers on a debt level far below that of the industry. Its revenue has grown at a 3 year average of 20.5% which is double that of the industry's 10.4% with net income growth following the same trend at 19.5% in relation to the 10.7% of the industry. The company runs at a debt to equity of 0.9 which is also 65% less than that of the industry.

Year to date, Comcast has returned $3 billion as return on capital with the divide being equal between dividends ($1.5 billion) and share repurchase ($1.5 billion).


Strong Near-Term Prospects for Comcast

The surprises that have been announced by the company at the latest investors' conference have already begun increasing the stock's value. The trend was previously sustained prior to these announcements with the stock value rising nearly 40% year to date at $53 and 135% higher compared to the price 3 years ago. The X1 platform is proving to be a success and mobile integration through the Xfinity app could help the company sustain this positive trend.

The mobile integration itself can be a game changer for the company. This is because although watching mobile television has been on the market through third party applications this will be the first time a company in the U.S. will do this on a larger scale. We can expect a few glitches and more consumer confidence in using mobile for their entertainment needs.

The acquisition of NBCUniversal still has not given Comcast the desired synergy since the deal is just 10 months old. In the future, when the company fully integrates NBCUniversal, we can expect real returns to be realized and the company will begin to harvest solid returns. Based upon future near term prospects, I give Comcast a buy rating.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.