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Comcast Corporation (CMCSA)  Sell: How Much Debt Is Too Much Debt?

|About: Comcast Corporation (CMCSA)
Summary

United States trade war with China could create some collateral damage with their Government Bonds.

United States financial system is based on long term debt, what happens when everyone starts to default?

Sell because there is an uncertainty about the market, the firm creating enough value to repay their debts and the eminent threat of entry.

Considering the current trade war that the United States it’s pursuing against China, many speculators consider the possibility of China selling their $1.182 trillion U.S. Treasury bonds. This would be a punishment from the Chinese government causing an increase in government borrowing cost.

A major increase in interest rates might be the burst of a long-term debt bubble, which we might be experiencing. Furthermore, Comcast increased its long-term debt 80% in 2018 for a total of $107 Billion. This debt means that Comcast has or will have a serious solvency problem. Unexpected high-interest payments are going to eat up a large percentage of the firm’s revenue, decreasing their cash flows for re-investing in the company, giving dividends, and paying long term obligations.

Although the firm is changing its business model to a more accessible and modern one, it cannot stop the wave of competition approaching them. New internet providers like Google Fiber, or tv suppliers like Netflix and Amazon, are going to take more and more shares of the market. Comcast’s earnings per share have dropped 47% from 2017 to 2018. Our recommendation to sell is based on the macroeconomic events that can occur in the U.S. which is highly correlated with the health of the firm, the possibility of unexpectedly high-interest expenses on a recent high increase on long term debt, and the threats of competition. Comcast stock price is closed to their ultimate high of the year at $38.32 per share which is already decreasing in value. The best-recommended strategy is to sell high now.

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