Comcast Stock Is Back After Strong Q1 Earnings
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Summary:
- Comcast’s Q1 earnings results signal a strong start to the year, driven by the successful reorganization and growth in high-margin businesses.
- The company’s wireless business and streaming platform, Peacock, demonstrate its adaptability and innovative approach to meeting consumer demands.
- Despite favorable growth projections, Comcast is trading at the lower end of its five-year multiple, presenting an attractive investment opportunity.
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Comcast’s (NASDAQ:CMCSA) Q1 earnings results have outperformed expectations, setting the stage for a potentially strong year ahead. We like the company’s improving fundamentals and attractive valuation and have a Buy rating on the stock. As we dive into the company’s performance, we will explore the strategic reorganization into two reportable units, the success of its Connectivity & Platforms and Content & Experiences businesses, and the growth of its wireless and streaming services. This analysis aims to provide an insightful look into Comcast’s future growth potential and current valuation.
Q1 Knocks It Out Of The Park
Comcast’s Q1 earnings results signal a promising start to the year, and our analysis suggests that the company is well-positioned for future growth. The decision to reorganize the business into two reportable units, Connectivity & Platforms and Content & Experiences, reflects a strategic move to better align with the evolving media landscape and highlight growth opportunities.
Our assessment of the Q1 results indicates that the strong performance in high-margin Connectivity & Platforms business, which showcased a year-over-year margin expansion of 160 basis points, is a testament to Comcast’s disciplined investment and growth strategy. Despite facing headwinds in the lower-end broadband market, the company has managed to grow domestic broadband revenue by 5% and international connectivity by an impressive 18%. We believe that Comcast’s focus on growing broadband ARPU, which increased by 4.5% in Q1, will be crucial to sustaining revenue growth in 2023 and beyond.
The success of Comcast’s wireless business and the rapid growth of Peacock, with a 60% YoY increase in paid subscribers, highlight the company’s ability to innovate and adapt to consumer demands. The impressive 90% increase in Peacock advertising revenue, excluding the Olympics and Super Bowl, demonstrates its growing appeal to advertisers, which will be vital for the platform’s long-term profitability. In our opinion, the company’s commitment to investing in content production and strategic partnerships will further strengthen its position in the streaming market.
Moreover, Comcast’s ability to generate $3.8 billion in free cash flow during Q1, while simultaneously investing in its network and theme parks, is a strong indication of the company’s financial health. With a consistent focus on shareholder value, the return of $3.2 billion to shareholders through buybacks and dividends showcases the company’s commitment to delivering returns despite market challenges.
However, it is essential to recognize the hurdles that Comcast will need to overcome to maintain its growth trajectory. The competitive broadband environment, especially at the lower end of the market, may pose challenges in adding subscribers. Additionally, staying relevant in the content production space will require continuous investments, as streaming platforms vie for viewers’ attention.
In our view, Comcast’s strategic focus on high-margin businesses and disciplined cost control will be key to navigating these challenges effectively. The company’s dedication to driving growth in profitable segments, while maintaining profitability in businesses facing secular headwinds, underscores its adaptability and forward-thinking approach.
Our analysis of Comcast’s Q1 earnings results paints a cautiously optimistic picture for the company’s future prospects. While the media and communications landscape continues to evolve rapidly, Comcast’s strategic investments in high-margin businesses, disciplined cost management, and unwavering commitment to shareholder value position it well for continued growth and success in the coming years.
Valuation
The valuation of Comcast appears to be compelling based on FactSet’s consensus estimates for the coming years. With sales expected to decline by 1.1% in 2023, the company’s performance could surpass these estimates if it continues to execute effectively, as demonstrated by the anticipated revenue growth of 2.8% in 2024. This growth target seems achievable, particularly considering Comcast’s current strength in the broadband market.
Earnings-per-share is projected to remain relatively flat in 2023 at $3.63, with an acceleration of 13.4% to $4.11 in 2024. This faster EPS growth is expected to be driven by improvements in operating margin, which is forecasted to reach 19.4% in 2024.
The outlook for free cash flow appears to be robust, as capital expenditure growth is expected to peak at $12.6 billion in 2024, with the consensus forecast anticipating a modest 1.5% increase to $12.8 billion. This represents a significant slowdown compared to the 19% increase in 2022 and the 16% increase in 2023. As a result, free cash flow is expected to rise by 10% to $13.9 billion in 2024.
Despite these favorable projections, Comcast is currently trading at the lower end of its five-year multiple, at only 10.6 times the forward consensus EPS. Over the past five years, the stock has traded within a range of 8 to 19 times. We believe that the company’s improved execution and positive growth prospects suggest that the stock is quite attractive at these levels.
Comcast’s valuation appears to be undervalued based on the company’s projected performance in the coming years. With a strong outlook for revenue growth, EPS acceleration, and robust free cash flow, the stock’s current trading multiple seems to be an attractive entry point for investors. Furthermore, given the company’s improved execution and the potential for exceeding consensus estimates, the stock seems well-positioned for future growth and appreciation.
Conclusion
Our analysis of Comcast’s Q1 earnings results and strategic initiatives indicates a cautiously optimistic outlook for the company’s future prospects. The company’s focus on high-margin businesses, disciplined cost control, and commitment to shareholder value suggest that Comcast is well-prepared to navigate the challenges of the rapidly evolving media and communications landscape. Investors looking for an undervalued stock with strong growth potential may find Comcast’s current valuation to be an attractive entry point. As the company continues to execute its growth strategies and adapt to market demands, there is potential for significant appreciation in the coming years.
Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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