Comcast Corporation ACMCSA

Morningstar Rating

Stock Research and Analysis

by Michael Hodel, CFA

Comcast's business is maturing as high-speed Internet access adoption plateaus and market share gains in the phone business bump up against the growing trend toward complete wireless substitution. We believe the firm is poised to continue increasing its share of total spending on fixed-line telecom services in most of the neighborhoods it serves, though, providing it with a solid competitive advantage over its phone company rivals. 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 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. 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. Read more

Strategy

Comcast is heavily marketing new services, such as phone service and video on demand, to boost revenue per customer, raise customer loyalty, and increase returns on the investment it has made in its networks. 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 holders of Class A special shares CMCSK are not entitled to vote on corporate matters. 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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