Comcast Corporation ACMCSA

Morningstar Rating

Stock Research and Analysis

by Michael Hodel, CFA

Comcast's decision to go after NBC Universal tarnishes our view of the firm somewhat. We still believe the firm has a strong competitive position in its core cable business, which will continue to account for the majority of the firm's cash flow. We Read more

Bulls Say

No other company can match Comcast's ability to offer multiple services over one connection within the territories it serves. In addition to greater customer loyalty, delivering multiple services leads to higher cash flow per subscriber because the variable cost of adding services is modest.

Comcast's network should give it a platform to meet customer demands well into the future at modest incremental cost. For example, the firm has deployed DOCSIS 3.0, a technology that allows far faster Internet access speeds than those typically available today, while actually cutting capital spending.

The small and medium-size business services market should be a source of growth for Comcast for several years. Management estimates firms in its territory spend between $12 billion and $15 billion annually on telecom services, and Comcast has captured less than 5% of this business.

Combining with NBCU gives Comcast a clear view of the future of television on both the content creation and distribution sides of the industry. This perspective should allow it to craft new offerings and technologies that create value for both companies. Read more

Bears Say

Cable companies like Comcast will be in head-to-head competition with the phone companies for consumers' spending on the complete spectrum of telecom and TV services. Although the phone companies' networks are generally inferior to Comcast's today, these companies produce massive cash flow that is, in part, being used to upgrade networks.

Wireless phone service is a major gap for Comcast. Although most of the large phone companies own wireless networks, Comcast only has a prospect investment in WiMAX upstart Clearwire and service agreements with Clearwire and Sprint.

Internet-based video distribution could cause customers to shift away from cable or pressure cable prices. The NBCU deal increases Comcast's exposure to this threat.

Comcast's agreement to acquire a stake in NBCU (and likely eventually the entire firm) is a black mark on management's track record. The firm would have been far better served buying back shares, which were trading at a sharp discount to our fair value estimate, and letting shareholders interested in owning content invest in businesses like Disney DIS, which we believe are more attractively valued than NBCU. Read more

Strategy

The NBCU deal marks a shift in Comcast's strategy, as the firm will likely look for ways to combine the its capabilities in content distribution and creation. We are skeptical of the firm's ability to Read more

Management

The biggest issue we have with Comcast's stewardship is that the founding Roberts family owns all of the supervoting Class B shares, thereby holding 33% voting control of the firm. Holders of Class A shares have the remainder of voting power, while Read more

Profile

Comcast is the largest operator in the cable industry. The firm's networks reach 50 million households, with 24 million customers signing up for at least basic cable service. Read more

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