Comcast (CMCSA) reported great second quarter earnings with improvements and positive surprises across the board; nevertheless, the market continues to worry about competition in the streaming wars, cautions Robert Rapier, editor of Utility Forecaster.
Indeed, the entire telecom sector has gotten battered this year. It is the worst-performing sector year-to-date by far, down nearly 30%.
There are several factors hurting the telecoms. They are fiercely competing against each other for subscribers, and rising interest rates are hitting their bottom line. Many have been reporting weak earnings versus a year ago, and some have been providing a downbeat outlook for the rest of the year.
The question is whether the telecoms represent a value too deep to ignore. I believe that’s true with Comcast. I think the outlook there is better than the share price suggests.
My crystal ball isn’t perfect, but the telecom sector is going to rally at some point. Comcast is a company I want to hold when it does rally. That’s my intuitive feeling, but it’s also what the numbers suggest — hence Comcast’s climb in the rankings.
It wasn’t a perfect quarter for Comcast, but it was pretty darn good. The company beat estimates on the top and bottom line and increased both measures versus a year ago.
Comcast CEO Brian Roberts detailed the highlights in the earnings conference call: "We grew second quarter consolidated revenue by 5%, adjusted EBITDA by 10%, and adjusted EPS by 20%. ... we bought back $3 billion worth of our stock in the quarter, bringing our total to $6 billion year-to-date. And we continue to have a healthy dividend and one of the strongest balance sheets in the industry.”
Those are solid results, yet the company is significantly discounted. The disconnect can’t last forever. Admittedly, I have felt this way for a few months, and the share price hasn’t yet justified my faith. Sentiment in the telecom sector is just really bad right now, but this is when you want to accumulate shares.
The time to buy is when the sector is on sale — and then exercise patience. That advice generally pays off when it comes to our portfolio holdings. If you want to shift some money into the telecoms, I would put my money on Comcast. The market will eventually price it according to its fundamentals.
