Stocks to buy in 2020: Comcast Corporation

Comcast Corporation Ticker symbol: CMCSA (NASDAQ) 

Large Cap Value Line financial strength rating: A Current yield: 2.2% Dividend raises, past 10 years: 10 
Company Profile
· Comcast is one of the nation’s leading providers of communications services and information and entertainment content passed through those services. The company is now organized into six businesses: Cable Communications, Cable Networks, Broadcast Television, Filmed Entertainment, Theme Parks, and now SKY, acquired in late 2018, a major European entertainment network, Internet, and phone service provider based in the UK. The Cable Communications core business is Comcast Cable, the familiar cable TV delivery network that has evolved into a conduit for delivering bundled “Xfinity X1” high-speed Internet services, phone services, scheduled TV, studio shows and movies, on-demand content, and home security and automation services. This business serves some 30.3 million video subscribers (28 million residential, 2.3 million business customers) and 25.1 million Internet subscribers in 39 states. As described in the following, this segment is the largest at 58 percent of total revenues. 
· Cable Networks is an assortment of content properties delivered primarily through cable (not just Comcast Cable) and includes regional sports networks such as Comcast Sports Network Bay Area and national channels such as MSNBC, CNBC, Syfy, Bravo, Oxygen, the Golf Channel, and E! (an entertainment channel) as well as Fandango (a moviegoer’s website) and others. Most of the channels just listed have penetrated at least 70 million households. 
· The Broadcast Television business is centered on NBCUniversal, which includes the familiar NBC broadcast network, which broadcasts through some 200 affiliated television stations across the US. Included are 11 owned television stations, NBC studios, and also Telemundo and NBC Universo, all acquired in 2013. 
· Filmed Entertainment includes Universal Pictures, DreamWorks Animation (acquired in 2016), Focus Features, and Illumination brands of feature-length films and other entertainment. The Theme Parks business includes Universal theme parks in Hollywood, Orlando, and Osaka, Japan. These parks host permanent and periodic attractions, including a new Jurassic World attraction in Hollywood and a Harry Potter–themed roller coaster in Orlando. 
· SKY operates in four of the five largest pay television markets in Europe: UK, Germany, Italy, and Spain; the majority of its revenues come from the direct-to-consumer video business, which has 23.6 million customers. It also provides high-speed Internet and phone (wireless and wired) service bundles. 
· Finally, “other” business interests include ownership of the Philadelphia Flyers hockey team and the Wells Fargo Center arena in Philadelphia. 

With these businesses, Comcast has become one of the largest integrated content development and distribution businesses in the US. 
Comcast places a lot of emphasis on connectivity and penetration in its customer base. In 2018, they estimated a total opportunity (“homes and businesses passed”) of 57.2 million locations; that is, 57.2 million locations they could serve with currently installed cable lines. Out of that opportunity, they estimate 30.3 million video subscribers (53 percent penetration), 25.1 high-speed Internet subscribers (44 percent), and 11.6 million voice telephone subscribers (20 percent). There are now 2.3 million business subscribers for high-speed Internet, a recent focal area. The company also emphasizes selling multiple products (i.e., cable TV and Internet), much of it through its bundled “Xfinity X1” bundled brand, and estimates about 20 million multiple product customers, or about two-thirds of all subscribers in the US. The SKY acquisition doubles the company’s pay TV base. 

For management purposes, Comcast breaks down its business into two major segments: Cable Communications and NBCUniversal: 

· Cable Communications (58 percent of total revenues and 70 percent of operating income) houses the “delivery” business, including video, high-speed Internet, and voice services (collectively, “cable services”) and the Xfinity bundle. 
· NBCUniversal (38 percent of revenues, 30 percent of income) houses the content creation and entertainment businesses, including Cable Networks—12 percent of total revenues, Broadcast Television (11 percent), Filmed Entertainment (9 percent), and Theme Parks (7 percent). 

Not surprisingly, the Comcast network has long been built on acquisitions, starting with the cable network and continuing more dramatically with the acquisition of NBC, Universal, and DreamWorks properties. SKY, acquired for $30.5 billion, is the largest recent acquisition, and the company is fighting “cord cutters” by launching a new “free” streaming service to its existing customers. Content you want, when and where you want it. 

Financial Highlights, Fiscal Year 2018

 Strength across all businesses resulted in a roughly 7 percent revenue increase from its core businesses, augmented by another 5 percent from SKY, giving a roughly 12 percent overall increase. NBCUniversal, Broadcast Networks, and Cable Networks turned in revenue increases of 8.9, 19.6, and 12.2 percent while Cable Communications was relatively flatter at 3.9 percent. Earnings rose 20 percent including a good share from SKY. A 120 million share buyback helped drive pershare earnings up over 24 percent. For 2019 revenues “sky” higher mainly on SKY, up 18–20 percent for the year, while earnings should rise in the 6–8 percent range. FY2020 forecasts call for a 10–12 percent earnings advance on a more moderate 5–6 percent top-line growth.
Reasons to Buy

 The addition of Comcast to the 2013 100 Best list was one we debated out of concern about cable companies in general. However, it continues to pay off handsomely; the shares have tripled since our decision as Comcast has evolved into a media, not just a cable, company. We like the company’s strategic and operational focus—the acquisitions make sense, and the metrics they present truly describe what’s important in the business—not just size and volume but also making customer relationships better and more profitable. The different pieces of the company fit together well. 

As regular watchers of CNBC, MSNBC, Comcast Sports, and others, and admirers of the DreamWorks and other film platforms, we like the content assortment—it may not be the biggest, but it is one of the best content franchises. As cable cords are cut, we expect content to become a bigger part of the business than the 40 percent it brings today. Comcast (and its competitors) are becoming a larger version of what the big three television networks once were. They own not only the content development and marketing but also the content delivery infrastructure, giving them a step up on most other content providers. There are no franchises or distributors to deal with, and they are free to develop independent content and compete with their own live and streamed content as they see fit. This is an extremely dynamic market model, and Comcast holds a leadership position. AT&T, once again a 100 Best stock, seems to be pursuing the same path—content (Time Warner) plus delivery (through wireless and DirecTV). 

Reasons for Caution
 Although Comcast is certainly big enough to survive on its own, the trend toward industry consolidation brings the usual risks associated with acquisitions. Competition has heated up, both from AT&T and other “traditional” providers and from Internet-only services like Hulu, Netflix, and Roku. “Cord cutting” (going Internet-only) is gathering steam, but Comcast’s content stable and competing streaming services release some of the pressure. 
SECTOR: Telecommunications Services Beta coefficient: 0.85 10-year compound earnings per-share growth: 19.5% 10-year compound dividends per-share growth: 19.5%

Revenues (mil): 55,842
 Net income (mil): 4,377
 Earnings per share: 0.79
 Dividends per share : 0.23
 Cash flow per share: 2.22
 high: 13.6
 low: 9.6

Revenues (mil): 62,570
 Net income (mil): 6,203
 Earnings per share: 1.14
 Dividends per share : 0.33
 Cash flow per share: 2.68
 high: 19.2
 low: 12.1

Revenues (mil): 64,657
 Net income (mil): 6,816
 Earnings per share: 1.28
 Dividends per share : 0.39
 Cash flow per share: 2.83
 high: 26.0
 low: 18.6

Revenues (mil): 68,775
 Net income (mil): 8,380
 Earnings per share: 1.47
 Dividends per share : 0.45
 Cash flow per share: 3.24
 high: 29.7
 low: 23.9

Revenues (mil): 74,510
 Net income (mil): 8,171
 Earnings per share: 1.63
 Dividends per share : 0.50
 Cash flow per share: 3.45
 high: 32.5
 low: 25.0

Revenues (mil): 80,403
 Net income (mil): 8,485
 Earnings per share: 1.74
 Dividends per share : 0.55
 Cash flow per share: 3.80
 high: 35.7
 low: 26.2

Revenues (mil): 84,526
 Net income (mil): 9,850
 Earnings per share: 2.06
 Dividends per share : 0.61
 Cash flow per share: 4.33
 high: 42.2
 low: 34.1

Revenues (mil): 94,507
 Net income (mil): 11,017
 Earnings per share: 2.55
 Dividends per share : 0.76
 Cash flow per share: 5.05
 high: 44.0
 low: 30.4