Comcast: A "Model of Consistency"

03/13/2020 5:00 am EST


Roger Conrad

Chief Analyst/Managing Partner, Capitalist Times

Intense competition, hefty capital spending needs and erratic regulation have made the communications sector an investment minefield. But Comcast Corp (CMCSA) remains a model of consistency, adding new business while growing cash flow and dividends, suggests Roger Conrad, editor of Conrad's Utility Investor.

Last year was no exception. The company closed on a major acquisition, the former Sky Plc, adding a successful and growing network in Europe as well as fresh content.

Comcast also gained 1.4 million new broadband users in the US while introducing its new Peacock streaming service. Security and Automation customers increased 4.4 percent. And the company successfully rolled out wireless service piggybacked on the Verizon (VZ) network, now with 2 million customers.

New business more than offset a 3.3 percent drop in legacy pay television accounts, which followed the industry-wide trend toward streaming services. The result was a 5.4 percent increase in cable communications EBITDA, with EBITDA margins rising 140 basis points to 40.1 percent of revenue.

NBC Universal sales dropped 2.6 percent and EBITDA fell 4.7 percent from the year ago quarter, reflecting tough comparisons. The division, however, was again the “most watched” media company in the US. And Sky posted 12 percent higher EBITDA despite challenging conditions in European markets.

Comcast’s business model of marrying high speed broadband to comprehensive content produced earnings per share growth of 14.7 percent. That was the 10th year of double-digit increases in the past 11.

In addition, free cash flow reached $13.4 billion after nearly $10 billion in capital spending, which was the third highest in the industry after AT&T Inc. (T) and Verizon.

Deleveraging cut debt to EBITDA to 2.8 times from 3.3 times a year ago. And management announced a 9.5 percent dividend increase, an 84 percent boost from five years ago.

Comcast’s five-part bond offering last month demonstrated a new ability to access low cost debt capital in multiple currencies. That’s the best assurance the company will actually be able to cut costs as it pays off and refinances nearly $15 billion in debt maturities over the next two years, and funds new expansion. Buy up to $45 if you haven’t yet.

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