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Comcast Remains Neutral

Zacks Equity Research

We reaffirm our long-term Neutral recommendation on Comcast Corp. (CMCSA). The company reported strong financial results for the second quarter of 2013. Both the top and the bottom line beat the Zacks Consensus Estimate. Comcast currently has a Zacks Rank #3 (Hold). We believe Comcast is currently fairly valued.

Why Kept at Neutral?

Comcast’s Cable business maintained its strong performance and the struggling NBC Universal segment witnessed an improvement. As a result, Comcast generated a record-high free cash flow. The company has already completed its major technical innovations, such as DOCSIS 3.0, all digital networks and a multi-platform content delivery network. Moreover, newly-launched services such as Xfinity Home, Wi-Fi, Streampix, X1, upcoming X2 and the high-speed Metro Ethernet are several long-term growth catalysts for the company.

In the second quarter of 2013, Comcast gained a net 187,000 high-speed Internet subscribers and 161,000 telephony customers. Quarterly consolidated average revenue per user (:ARPU) was $160, up 7.4% year over year. Comcast’s bundled services are lucrative growth opportunities. Nearly 77% of its video customers subscribe to two services and almost 42% customers subscribe to three services.

On the other hand, continued loss of video customers is a concern. The cable TV operators are gradually losing their hold in the U.S. pay-TV market. Comcast lost 159,000 residential video subscribers in the second quarter of 2013. Nine large cable TV operators, including Comcast and Time Warner Cable Inc. (TWC), together lost a whopping 555,000 video subscribers in the same timeframe. Whereas, telecom giants, Verizon Communications Inc. (VZ) and AT&T Inc. (T), jointly gained 373,000 subscribers in the same quarter.

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