Earnings Scorecard: Comcast Corp. (CMCSA)

Comcast Corp. (CMCSA) reported second quarter 2010 financial results, exceeding the Zacks Consensus Estimate by a penny. This better-than-expected performance was driven by solid customer growth and an improving advertising market.

Quarter’s Highlights

Adjusted EPS in the reported quarter was 33 cents compared with 29 cents in the prior-year quarter. It included $22 million in operating expense, $2 million of interest expense and $35 million of other expense related to the NBC Universal Transaction. Adjusted EPS outpaced the Zacks Consensus Estimate of 32 cents.

GAAP net income was $884 million or 31 cents per share, compared with $967 million or 33 cents per share in the prior-year quarter. The decline was due to expenses related to its highly anticipated acquisition of NBC Universal.

Quarterly revenue was $9,525 million, up 6.1% year over year. This was also better than the Zacks Consensus Estimate of $9,269 million. Advertising revenues rebounded in the quarter with a 23% year-over-year growth.

Agreements of Analysts

The recent estimate revision trend is some what mixed, with an overall downward bias. Out of 23 analysts covering the stock, in the last 30 days, 3 analysts revised their estimates upward for the third quarter of fiscal 2010, while 7 revised their estimates downward. Similarly, for the next quarter, out of 23 analysts covering the stock, 4 analysts revised their estimates upward, while 6 revised their estimates downward.

For fiscal year 2010, out of 26 analysts covering the stock, 7 analysts revised their estimates upward in the last 30 days, while 11 revised their estimates downward. Similarly, for the next fiscal year, out of 25 analysts covering the stock, 15 analysts revised their estimates upward, while only 3 revised their estimates downward.

Comcast is well positioned for above-average, long-term growth based on its competitive advantage of scale and its opportunity to turn around troubled operations in its acquired AT&T Broadband legacy systems. Comcast’s subscriber base of more than 21 million could assist it in developing a fundamentally different cost structure than small multi-channel operators. A complete nationwide footprint allows the company to compete more effectively for advertising dollars on both local and national levels, possibly narrowing the cost-per-thousand gap between cable and broadcast divisions.

The company’s single-minded focus on cable and disciplined leadership structure could result in a rapid improvement in operations and expand Cable margins. The greatest risk to long-term growth for CMCSA and the rest of the cable industry lies in a potential renewal of governmental rate regulations. A material change in the congressional attitude toward cable operators could derail the industry’s ability to capitalize on its current strategic and competitive advantage.

Magnitude of Estimate Revisions

Despite the mixed trend of estimate revisions, the Zacks Consensus Estimate for the third quarter 2010 EPS remains flat at 30 cents in the last 30 days and also remains flat at 32 cents for the next quarter.

For fiscal year 2010 and 2011, EPS was flat at $1.25 and $1.44, respectively.

Our Recommendation

Despite slowing video net additions, we believe that better-than-expected video pricing power for the total pay-TV industry will help to maintain revenue growth. However, the performance of the company will be affected by a continued tough competitive macro environment. We remain concerned regarding the difficult housing market, broadband slowdown and increasing competition from local telephone companies in the high-speed Internet and video markets.

However, Comcast appears to be regaining its footing, benefiting from rolling out HSD tiers, faster data speeds, more aggressive marketing, including data/voice double-plays, and continues to roll out product improvements. We believe that NBC deal could well create some dislocation in Comcast shares in the near term, but consider the company’s interest in acquiring more content to be a strategic, long-term positive.

We maintain our Neutral recommendation on Comcast. It is currently a Zacks #3 Rank (Hold) stock.

COMCAST CORP A (CMCSA): Free Stock Analysis Report

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