On Sep 3, 2014, we issued an updated research report on Comcast Corporation (CMCSA) – the largest cable MSO (multi-service operator) in the U.S. The company’s Cable business continues to perform well and the NBC Universal segment is also witnessing considerable improvement on a string of innovative service launches and extension of Olympic telecast rights.
Comcast has delivered positive earnings surprises in three of the last four quarters, with an average beat of 3.95%. Meanwhile, the company reported mixed financial results for the second quarter of 2014 wherein its bottom line surpassed the Zacks Consensus Estimate while the top line missed the same.
Comcast continues to enhance its offerings with the nationwide rollout of X1 services, various home security services and new content for multi-platform on-demand services. The next-generation web-capable platform, X1, offers a hybrid IP/QAM video gateway with an advanced user interface and the ability to port third-party apps that tie into a cloud-based infrastructure.
Moreover, the company is targeting the small and medium sized business (SMB) segment through its popular metro Ethernet service which offers fast and economical Internet access.
Meanwhile, Comcast has reached an agreement to acquire the second largest cable MSO in the U.S. – Time Warner Cable (TWC). The deal is expected to close within a year, subject to regulatory approval and consent of the shareholders of both the companies. Comcast is expected to derive a significant $1.5 billion of operating synergy from this merger of which 50% may be realized within the first year of the unification.
However, persistent video subscriber loss coupled with mounting programming expenses may act as headwinds for the company while moving ahead. Moreover, there is little scope for growth in the digital video customer base in the nation. To add to the woes, availability of low-cost video streaming services from the likes of Netflix Inc. (NFLX), Hulu and Google Inc.’s (GOOG) Youtube continue to pose significant threat to cable MSOs.
Currently, Comcast carries a Zacks Rank #3 (Hold).