Its properties include Comcast cable television (about 55% of revenues), NBCUniversal (32% of revenues), which includes the Universal movie studios and theme parks, NBC and Telemundo and the Peacock TV streaming service, and Sky media company in Europe (13% of revenues). Comcast also owns the Philadelphia Flyers professional hockey team and a 33% stake in the Hulu streaming service.
Comcast shares have tumbled 50% from their late 2021 peak and now trade in line with their mid-2015 price. Investors worry about cyclical and secular declines in advertising revenues and a secular decline in cable subscriptions as consumers shift toward streaming services, as well as rising programming costs and incremental competitive pressure as phone companies upgrade their fiber networks.
However, Comcast is a well-run, solidly profitable company that for decades has successfully fended off intense competition while increasing its revenues and profits. Its operational breadth and depth, as well as management’s patience and discipline, have allowed it to understand and adapt to changes in technology and customer preferences.
The company’s diversified operations have helped provide it with valuable stability. Its slow-and-steady cable business is highly profitable even as it invests in technology upgrades to maintain its edge over competitors. Incremental losses in the number of total customer relationships are being offset by higher pricing and new services.
A major appeal of Comcast is that it generates immense free cash flow — a strength that is likely to endure. This free cash flow is not only plenty to support its reasonable debt level, but also supports a generous dividend and sizable share buybacks. Comcast has repurchased 6% of its shares in the past five quarters. In September, the company doubled its buyback program to $20 billion, strongly suggesting buybacks will continue.
Despite its strengths and quality, Comcast shares trade at an overly discounted 6.1x cash operating profits (EBITDA) and 7.9x earnings, and offer a 3.6% dividend yield. Investors searching for solid and enduring value at a very fair price need look no further than Comcast.
The Roberts family holds a near-controlling stake in Comcast yet has been a good steward of the firm’s resources. Our price target for the shares is $42, based on 6.5x EV/EBITDA using a conservative estimate for 2024 results. The shares also offer an attractive 3.4% dividend yield.