Shares of Comcast (NASDAQ: CMCSA) rose 16% in 2017, but still underperformed the S&P 500's 19% gain. The cable and media giant beat revenue and earnings estimates for five straight quarters, but cord cutting fears constantly throttled its gains.
However, Comcast's trailing P/E of 20 remains lower than the industry average of 29 for pay TV providers. Its forward P/E of 16 also makes it cheaper than its media rival Disney (NYSE: DIS), which trades at 18 times forward earnings.
Universal Studios Japan, Osaka. Image source: Author.
Therefore, investors might be wondering if Comcast can outperform the market this year. Let's examine the bear and bull cases to find out.
The bull case for Comcast
Comcast has three core strengths -- its theme parks, NBC, and Universal's film business. Its Theme Parks revenue rose 8% annually to $1.4 billion last quarter driven by the openings of Minion Park in Japan and Volcano Bay in Orlando, and accounted for neary a fifth of NBCUniversal's revenues.
Image source: Universal Studios.
By comparison, Disney's Parks and Resorts revenue rose 6% annually to $4.7 billion last quarter. Universal has far fewer parks than Disney, but it plans to expand its global presence with new parks in Russia and China in the near future.
NBC is the highest-rated network in America in the 18-49 demographic, thanks to Sunday Night Football, This is Us, The Voice, and Will & Grace -- which respectively give it leading positions in sports, drama, reality shows, and comedies. That strength lifted its adjusted broadcast revenues (excluding the impact of the Olympics last year) by 12% annually to $2.1 billion last quarter, which accounted for 27% of NBCUniversal's revenues.
NBCUniversal's adjusted Cable Networks revenue also rose 4% to $2.6 billion, or 32% of the division's top line. Those figures look much better than Disney's 3% annual drop in Media Networks revenue last quarter.
Universal's Filmed Entertainment revenues dipped 0.5% annually to $1.8 billion last quarter, or 22% of NBCUniversal's revenues, mainly due to a seasonal slowdown in major film releases. But the business' revenues still rose 31% annually during the first nine months of the year, thanks to the strength of major multi-year franchises like The Fast and the Furious and Despicable Me.
The bear case against Comcast
Comcast's NBCUniversal business looks healthy, with its adjusted revenue and EBITDA both rising 6% annually last quarter. But the bears will argue that those gains could be offset by gradual losses at its Cable Communications business, which is exposed to cord cutters.
Image source: Getty Images.
Comcast lost 125,000 video subscribers last quarter, which marked an alarming acceleration from a loss of 34,000 subscribers in the previous quarter. However, Comcast is offsetting those losses by selling pricier bundles of cable, home internet, and streaming services.
The growth of its home internet business, which added 214,000 customers last quarter, also softened the blow, since cord cutters still need high-speed connections to stream content.
It's also blending together streaming content, live TV, apps, a DVR, and on-demand programs on its Xfinity X1 platform, which was used by 57% of its residential video customers last quarter -- up from 45% a year earlier.
As a result, Comcast's Cable Communications revenue and adjusted EBITDA both rose 5% annually last quarter. Analysts don't see cord cutting as a major headwind for Comcast's well-diversified business -- which is why they expect its revenue and earnings to respectively rise 5% and 18% this year.
So is it time to buy Comcast?
The combination of NBCUniversal and its cable communications business gives Comcast unique advantages against less diversified competitors in both markets. Yet investors seemingly ignored those strengths, as the stock sold off with companies that were more heavily exposed to cord cutters.
Therefore I think that Comcast is a solid investment for 2018, and is definitely a stock to buy on any irrational dips. In the meantime, its forward dividend yield of 1.5% -- which is supported by a low payout ratio of 29% -- provides a nice bonus for patient investors.
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