Comcast Stock: An Ultra SWAN Bargain You Can Trust In This Recession

Summary:

Comcast Corporation is up 40% after bottoming at 8.3X earnings, the lowest valuation in the company’s history.
Comcast remains a 36% undervalued, Warren Buffett-style “fat pitch” ultra-value buy.
It’s trading at 7.2X cash-adjusted earnings, pricing in -2.6% growth even though it is expected to grow 11.7% over time.
Comcast’s attractive growth prospects are courtesy of 14% growth in revenue per user, strong free cash flow generation, and $61 billion in buybacks over the next five years.
For anyone comfortable with its risk profile, Comcast Corporation remains one of the best Ultra SWAN dividend-growth blue chips you can buy, with a PEG of 0.62 representing growth at a wonderful price. Comcast offers 100% potential upside over three years and 240% over six, 5X more than the S&P 500 consensus.

This article was published on iREIT for Alpha on Monday May 15, 2023. This article was coproduced with Dividend Sensei.

I’m often asked why I recommend stocks when we’re headed for a recession and even a potential debt ceiling showdown in just a few weeks.

The answer is simple, and it’s not because that’s my job. 😉

It’s always and forever a market of stocks, not a stock market.

Individual companies will bottom in their own times, sometimes long before the market does.

In 2008, Altria Group, Inc. (MO) bottomed at a 15% very safe yield in December and was up almost 10% by the time the S&P 500 Index (SP500) bottomed on March 9th.

In 2002, Amazon.com, Inc. bottomed in January and was up 70% by the time the S&P bottomed in October.

Well, guess what else has likely bottomed already in this recession?

Comcast Corporation (NASDAQ:CMCSA), which looks like it bottomed in September 2022, one month before the rest of the market (so far).

Let me show you why the Comcast bear market is likely ending and why this Ultra SWAN is still a Warren Buffett-style “fat pitch” table-pounding Ultra Value buy.

One that could double in the next three years and deliver potential 240% returns over the next six years.

That’s 400% better return potential than the market through 2028 and 20% annual Buffett-like returns from an Ultra SWAN bargain hiding in plain sight.

Why Comcast’s Bear Market Is Likely Ending

Comcast is climbing out of its 2nd worst bear market in history, a 50% crash. It’s up 39% since its lows, an incredible 75% annual return.

When it bottomed in September 2022, Comcast hit a P/E of 8.3, the lowest in company history.

Yes, lower than the Pandemic lows and the Great Recession lows.

Comcast wasn’t priced just for recession; it was priced for a depression that almost certainly isn’t coming.

That’s why, despite a 40% rally off the lows, and an incredible 75% annualized return, CMCSA still has plenty of gas left in the tank.

Comcast: Greatest Rallies Off Bear Market Lows

Time Frame (Years)	Annual Returns	Total Returns
1	206%	206%
3	76%	447%
5	45%	533%
7	36%	753%
10	30%	1265%
15	17%	934%

(Source: Portfolio Visualizer Premium)

From its lowest valuation in history, Comcast is capable of delivering life-changing, Buffett-like returns.

Why Comcast Is One Of The Greatest Dividend Stocks In The World

The Dividend Kings 3000-point safety and quality model is based on over 1,000 fundamental metrics. It historically predicts 95% of dividend cuts before they happen.

Dividend Safety

Rating	Dividend Kings Safety Score (250 Point Safety Model)	Approximate Dividend Cut Risk (Average Recession)	Approximate Dividend Cut Risk In Pandemic Level Recession
1 – unsafe	0% to 20%	over 4%	16+%
2- below average	21% to 40%	over 2%	8% to 16%
3 – average	41% to 60%	2%	4% to 8%
4 – safe	61% to 80%	1%	2% to 4%
5- very safe	81% to 100%	0.5%	1% to 2%
CMCSA	92%	0.50%	1.40%
Risk Rating	Very Low-Risk 82nd percentile risk management	A- Stable outlook credit rating =2.5% 30-year bankruptcy risk	20% or less max risk cap

Overall Quality

CMCSA	Final Score	Rating
Safety	92%	5/5 very safe
Business Model	90%	3/3 wide moat
Dependability	92%	5/5 very dependable
Total	91%	13/13 Ultra SWAN
Risk Rating	5/5 Very Low Risk
20% OR LESS Max Risk Cap Rec	5% Margin of Safety For A Potentially Good Buy

Comcast is the 207th highest quality company on the DK 500 Master List.

59th percentile
higher quality than all but 41% of the world’s best blue-chips.

The Dividend Kings 500 Master List includes some of the world’s best companies, including:

Every dividend champion (25+ year dividend growth streaks, including foreign aristocrats)
Every dividend aristocrat
Every dividend king (50+ year dividend growth streaks)
Every Ultra SWAN (as close to perfect quality companies as exist)
The 20% highest-quality REITs, according to iREIT
40 of the world’s best-growth blue chips.

Why is Comcast so high-quality and one of the safest dividend stocks in the world?

Comcast was founded in 1963 in Philadelphia. It’s used smart M&A to grow into a global media titan.

The core cable business provides TV, internet, and phone to 61 million U.S. homes and businesses (50% of the country).

55% of homes in its markets use at least one Comcast service.

It bought NBCUniversal from General Electric (GE) in 2011. Through NBC, it owns several cable networks, including CNBC, MSNBC, and USA, plus the NBC broadcast network.

It owns Universal Studios, several theme parks, and Sky, which it acquired in 2018.

Sky is the U.K.’s dominant television provider, providing Pay-TV to customers in Italy, Germany, and Austria.

Earnings Update

“Comcast’s new reporting structure blends its U.S. and international operations, but results look consistent with recent trends. The firm added 5,000 net U.S. broadband customers, down from 264,000 a year ago, as Verizon and T-Mobile continue to take share with their wireless offerings.” – Morningstar.

Comcast’s internet business growth slowed due to increased competition from Verizon and T-Mobile, especially its 5G home internet offerings.

But that doesn’t mean Comcast is in trouble just yet.

“The average revenue per U.S. broadband customer increased by 4.5% versus a year ago, the fastest pace in nearly two years.” – Morningstar.

It was able to keep growing its revenue per internet user at a very impressive rate.

“Broadband and wireless growth roughly offset a television and ad revenue decline. Sky added net customers during the quarter, while the U.S. television business continues to shrink at an accelerating pace.” – Morningstar.

Traditional TV networks are in trouble and are being hollowed out by streaming, which is a $171 billion global market in 2023 and is growing at 7% annually, according to Statista.

That’s a $235 billion global industry in 2028, but Comcast’s Peacock remains a money loser for now.

“Company executives said Thursday that Peacock losses will peak in 2023 at around $3 billion but expect it to improve after that steadily.” – CNBC.

Comcast added 2 million Peacock subscribers in Q1, up 60% year-over-year, and it now has 22 million subscribers.

22 million subscribers are a long way from profitability. In fact, it makes Peacock the 18th biggest streaming service in the world (there are 83 total streaming services).

Netflix has 233 million subs (#1)
Disney+ 158 million (208 million including Hulu and EPSN+) #2
Amazon Prime Video 200 million #3
HBO Max 83 million #6
Apple 40 million #9
Peacock 22 million #18.

Management is confident it will eventually earn a profit on streaming, but streaming isn’t why you want to potentially own Comcast.

“The theme parks had a very strong quarter, with revenue up 25% versus a year ago to a record $1.9 billion.” – Morningstar.

Experiential services like parks are a great business these days, still riding high from “revenge travel” after the Pandemic – ask Disney. Comcast’s park cash flows were up 46% YOY.

But that’s also not the secret sauce to what makes Comcast potentially attractive.

There are three reasons why I like Comcast, and am recommending it today.

First, Comcast is expected to continue driving strong growth in average revenue per user, or ARPU, thanks to its many bundle and cross-selling opportunities.

In 2023 ARPU is expected to be $357, and that’s expected to grow 14% annually to $604 by 2027.

The internet business is expected to remain steady at 30 to 31 million subscribers through 2027.

Cable TV customers are expected to drop quickly from 15.5 million in 2022 to 9.3 million by 2025.

Steady growth in the new wireless internet business is growing at a healthy 15% annually, though most of that revenue is expected to offset cable TV declines.

The key to Comcast’s growth plans is ARPU growing and driving 2% annual sales growth through 2027.

How on earth can a company growing sales at 2% per year be a good business?

Comcast is controlling spending well, and its free cash flow is expected to almost double from $13 billion in 2022 to $23.3 billion in 2028.

13% annual growth in free cash flow.

Free cash flow pays dividends…and funds buybacks, which is the final key to the Comcast puzzle.

“I’m proud that we bought back 12 billion of stock in the last 12 months, including 2 billion in this quarter, shrinking our share count by 7% in that timeframe in addition to a healthy and growing dividend, which we just increased by over 7% in January.” – CEO, Q1 conference call.

Comcast bought back 7% of its shares in the last year, and the company is just getting started with buybacks.

When AT&T ran out of growth opportunities, they tried to buy their way to growth. That ended in disaster.

When Comcast ran out of organic growth opportunities, it turned to buying back shares at the lowest valuations in history.

In 2022 Comcast bought back $13.3 billion worth of stock, and this year it’s expected to buy back almost $10 billion despite a recession.

Between 2023 and 2028, analysts expect Comcast will repurchase $61 billion or $12.2 billion per year worth of stock.

35% of shares at current valuations.

That’s up to 8.3% shares each year if the price were to remain constant.

it won’t
but if it did, Comcast shareholders would benefit more in the long-term.

Priced For Negative Growth, But Solid Growth Prospects For Years To Come

Comcast is still trading at 7.2X cash-adjusted earnings and is priced for -2.6% growth. Here is what analysts actually expect.

Metric	2022 Growth	2023 Growth Consensus (Recession)	2024 Growth Consensus	2025 Growth Consensus
Sales	10%	4%	3%	0%
Dividend	9%	8% (Official)	7%	8% (16-year streak)
EPS	13%	1%	3%	8%
Operating Cash Flow	-5%	12%	7%	3%
Free Cash Flow	-22%	3%	13%	16%
EBITDA	11%	7%	3%	1%
EBIT (operating income)	14%	4%	8%	1%

(Source: FAST Graphs, FactSet)

Even in the 2023 recession, Comcast is expected to deliver solid growth across the board in all fundamental metrics.

But what about the long-term?

The median consensus from all 32 analysts covering Comcast is 11.7% long-term returns.

1% to 2% annual buyback-driven growth
more if Comcast remains undervalued for several years.

Long-Term Consensus Return Potential

Investment Strategy	Yield	LT Consensus Growth	LT Consensus Total Return Potential	Long-Term Risk-Adjusted Expected Return
Comcast	2.9%	11.7%	14.6%	10.2%
Vanguard Dividend Appreciation ETF	2.0%	11.3%	13.2%	9.3%
Nasdaq	0.8%	11.2%	12.0%	8.4%
Schwab US Dividend Equity ETF	3.6%	7.6%	11.2%	7.8%
REITs	3.9%	7.0%	10.9%	7.6%
Dividend Aristocrats	1.9%	8.5%	10.4%	7.3%
S&P 500	1.7%	8.5%	10.2%	7.1%
60/40 Retirement Portfolio	2.1%	5.1%	7.2%	5.0%

(Source: DK Research Terminal, FactSet, Morningstar)

Comcast is expected to keep beating the S&P by 2% to 3% per year over time and even outperform the Nasdaq.

Since 1988 Comcast’s average 12-month rolling return is 16% annually, and its average 10-year return is 13% annually, that is 3% better than the market.

But you don’t have to wait a decade to make a bundle with Comcast.

Comcast 2025 Consensus Total Return Potential

Comcast 2029 Consensus Total Return Potential

Comcast could double in three years and potentially deliver 240% total returns in the next six years.

5X the S&P consensus
20% annual returns for 6 years
Buffett-like returns from an Ultra SWAN bargain hiding in plain sight.

A Wonderful Company At A Wonderful Price

For the last 7-20 years, Comcast has averaged 16.5 to 17.5X earnings, meaning that hundreds of millions of cumulative income growth investors have determined fair value to be about 17X earnings.

90% statistical probability that intrinsic value is within this range.

Metric	Historical Fair Value Multiples (17-Years)	2022	2023	2024	2025	12-Month Forward Fair Value
5-Year Average Yield	2.10%	$51.43	$55.24	$55.24	$63.81
13-Year Median Yield	1.69%	$63.91	$68.64	$68.64	$74.56
Earnings	17.23	$62.72	$63.23	$70.99	$79.60
Average		$58.78	$61.87	$64.16	$72.03	$62.75
Current Price	$40.21
Discount To Fair Value		31.59%	35.01%	37.33%	44.18%	35.92%
Upside To Fair Value (Including Dividends)		46.18%	53.87%	59.56%	79.15%	58.94%
2023 EPS	2024 EPS	2023 Weighted EPS	2024 Weighted EPS	12-Month Forward EPS	12-Month Average Fair Value Forward PE	Current Forward PE
$3.67	$4.12	$2.26	$1.58	$3.84	16.3	10.5

Comcast is historically worth 16.3X earnings (including dividend fair value estimates) and today trades at 10.5X earnings and just 7.2X cash-adjusted earnings.

The average private equity deal is going for 11.1X cash-adjusted earnings meaning CMCSA is a bargain by even private equity standards.

Analyst Median 12-Month Price Target	Morningstar Fair Value Estimate
$44.82 (10.9X earnings)	$60.00 (15.6X earnings)
Discount To Price Target (Not A Fair Value Estimate)	Discount To Fair Value
10.29%	32.98%
Upside To Price Target (Not Including Dividend)	Upside To Fair Value (Not Including Dividend)
11.46%	49.22%
12-Month Median Total Return Price (Including Dividend)	Fair Value + 12-Month Dividend
$45.98	$61.16
Discount To Total Price Target (Not A Fair Value Estimate)	Discount To Fair Value + 12-Month Dividend
12.55%	34.25%
Upside To Price Target (Including Dividend)	Upside To Fair Value + Dividend
14.35%	52.10%

Analysts don’t expect Comcast to soar in the next year due to the recession, but Morningstar’s discounted cash flow fair value estimate is 15.6X earnings, similar to mine.

That means Comcast has nearly a 60% upside to fair value from today’s bargain-basement prices.

Rating	Margin Of Safety For Very Low-Risk 13/13 Ultra SWAN	2023 Fair Value Price	2024 Fair Value Price	12-Month Forward Fair Value
Potentially Reasonable Buy	0%	$61.87	$64.16	$62.75
Potentially Good Buy	5%	$58.78	$60.95	$59.61
Potentially Strong Buy	15%	$52.59	$54.53	$53.34
Potentially Very Strong Buy	25%	$44.08	$48.12	$47.06
Potentially Ultra-Value Buy	35%	$40.22	$41.70	$40.79
Currently	$40.21	35.01%	37.33%	35.92%
Upside To Fair Value (Including Dividends)		56.76%	62.44%	58.94%

For anyone comfortable with its risk profile, Comcast is still a potential Warren Buffett-style “fat pitch” table-pounding ultra-value buy.

Risk Profile: Why Comcast Isn’t Right For Everyone

There are no risk-free companies, and no company is right for everyone. You have to be comfortable with the fundamental risk profile.

Comcast Risk Summary

“We view regulation, and the environmental, social, and governance considerations it entails, as the largest uncertainty facing Comcast. Broadband internet access is often viewed as necessary to ensure inclusion in the workforce and access to education, while content produced at NBCU and Sky is scrutinized for its contribution to society.

As a result, both areas tend to draw heavy regulatory and political attention. The Biden administration has thus far largely followed the same light regulatory approach of the past, focusing primarily on expanding broadband access to underserved locations.

Longer term, though, if Comcast and its cable peers sharply increase their share of the internet access market in less competitive areas, regulatory pressure may grow. Even if regulation never rises to the level of explicit price caps, the threat of this regulation could pressure Comcast to limit price increases. Steadily rising internet access pricing, including the elimination of bundle discounts, is important to maintaining cash flow as fewer customers take Comcast’s TV and telephone offerings.

Technological obsolescence is always a risk. While we don’t expect 5G will radically alter the in-home internet access market, our assessment could be wrong. T-Mobile and Verizon are pushing fixed-wireless broadband access aggressively and are starting to capture a material portion of incremental market growth.

While we have low expectations for Comcast’s traditional pay-TV business, we still expect NBCU and Sky will maintain sizable audiences for the content they create and aggregate.

However, as more television viewing shifts online and to mobile devices, consumer viewing habits could shift in unpredictable ways that favor newer content models. In addition, as viewership continues to fragment, the economics of large-scale franchises may not be as attractive as they’ve been in the past, limiting the value of Comcast’s ability to monetize content through multiple channels.” – Morningstar (emphasis added).

CMCSA’s Risk Profile Includes

regulatory risk (potentially increasing costs and decreasing pricing power)
disruption risk: T-Mobile US, Inc. (TMUS) is investing heavily into 5-G ultra-fast home internet, while SpaceX and Amazon are investing in low-cost satellite internet
M&A execution risk
changing consumer tastes: cord-cutting (ARPU might not grow as fast as expected)
talent retention risk in the tightest job market in 54 years
cyber-security risk: hackers and ransomware
currency risk: growing over time

How do we quantify, monitor, and track such a complex risk profile? By doing what big institutions do.

Long-Term Risk Management Analysis: How Large Institutions Measure Total Risk Management

DK uses S&P Global’s global long-term risk-management ratings for our risk rating.

S&P has spent over 20 years perfecting their risk model
which is based on over 30 major risk categories, over 130 subcategories, and 1,000 individual metrics
50% of metrics are industry specific
this risk rating has been included in every credit rating for decades.

The DK risk rating is based on the global percentile of a company’s risk management compared to 8,000 S&P-rated companies covering 90% of the world’s market cap.

CMCSA Scores 82nd Percentile On Global Long-Term Risk Management

S&P’s risk management scores factor in things like:

supply chain management
crisis management
cyber-security
privacy protection
efficiency
R&D efficiency
innovation management
labor relations
talent retention
worker training/skills improvement
occupational health & safety
customer relationship management
business ethics
climate strategy adaptation
sustainable agricultural practices
corporate governance
brand management
interest rate risk management.

CMCSA’s Long-Term Risk Management Is The 139th Best In The Master List (72nd Percentile In The Master List)

Classification	S&P LT Risk-Management Global Percentile	Risk-Management Interpretation	Risk-Management Rating
BTI, ILMN, SIEGY, SPGI, WM, CI, CSCO, WMB, SAP, CL	100	Exceptional (Top 80 companies in the world)	Very Low Risk
Strong ESG Stocks	86	Very Good	Very Low Risk
Comcast	82	Very Good	Very Low Risk
Foreign Dividend Stocks	77	Good, Bordering On Very Good	Low Risk
Ultra SWANs	74	Good	Low Risk
Dividend Aristocrats	67	Above-Average (Bordering On Good)	Low Risk
Low Volatility Stocks	65	Above-Average	Low Risk
Master List average	61	Above-Average	Low Risk
Dividend Kings	60	Above-Average	Low Risk
Hyper-Growth stocks	59	Average, Bordering On Above-Average	Medium Risk
Dividend Champions	55	Average	Medium Risk
Monthly Dividend Stocks	41	Average	Medium Risk

(Source: DK Research Terminal)

CMCSA’s risk-management consensus is in the top 28% of the world’s best blue-chips, and is similar to:

Target: Ultra SWAN dividend king
Philip Morris International: Ultra SWAN dividend king
Lowe’s: Ultra SWAN dividend king
Nestle: Ultra SWAN global aristocrat
Equinix: Ultra SWAN REIT.

The bottom line is that all companies have risks, and CMCSA is very good at managing theirs, according to S&P.

How We Monitor CMCSA’s Risk Profile

32 analysts
three credit rating agencies
35 experts who collectively know this business better than anyone other than management
bond market for real-time fundamental risk assessments

“When the facts change, I change my mind. What do you do, sir?”

– John Maynard Keynes.

There are no sacred cows at iREIT or Dividend Kings. Wherever the fundamentals lead, we always follow. That’s the essence of disciplined financial science, the math behind retiring rich and staying rich in retirement.

Bottom Line: Comcast: An Ultra SWAN Bargain You Can Trust In This Recession

Dividend Kings Automated Investment Decision Tool

Let me be clear: I’m NOT calling the bottom in CMCSA (I’m not a market-timer). However, given that CMCSA hit the lowest P/E in history back in September, I do expect its 2022 lows to hold.

Even Ultra SWANs can fall hard and fast in a bear market.

Fundamentals are all that determine safety and quality, and my recommendations.

over 30+ years, 97% of stock returns are a function of pure fundamentals, not luck
in the short term, luck is 25X as powerful as fundamentals
in the long term, fundamentals are 33X as powerful as luck.

While I can’t predict the market in the short term, here’s what I can tell you about CMCSA.

one of the highest quality and safest dividend growth blue-chips on earth
very safe 2.9% yield (1.4% risk of a dividend cut), growing 7% in this recession and 11% to 12% over time
14% to 15% long-term return potential vs. 10.2% S&P
historically 36% undervalued
10.5X earnings vs 16.5 to 17.5X historical
7.2X cash-adjusted earnings, 0.62 PEG
240% consensus return potential over the next six years, 20% annually, which is 5X more than the S&P 500
200% better risk-adjusted expected returns than the S&P 500 over the next five years
2X the income of the S&P over the next five years.

Comcast is a deep-value Wall Street darling if you love Buffett-style bargains but hate catching falling knives.

Comcast is growing 50% faster than the S&P if you like fast-growing dividend blue-chips.

Comcast is an A-rated global media titan that’s likely to sail through this recession and keep growing the dividend no matter how severe it gets.

In fact, the risk of a dividend cut even in another Great Recession-level crash is about 1 in 72.

Attractive, very safe yield, amazing valuation, strong momentum, A-rated balance sheet, and epic amounts of buybacks are just some of the reasons to love this Buffett-style Ultra SWAN today.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of CMCSA either through stock ownership, options, or other derivatives. 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.

Author's note: Brad Thomas is a Wall Street writer, which means he's not always right with his predictions or recommendations. Since that also applies to his grammar, please excuse any typos you may find. Also, this article is free: Written and distributed only to assist in research while providing a forum for second-level thinking.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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