Earnings Preview: Comcast

Comcast Corp. (CMCSA) is slated to release its fourth quarter 2010 results on Wednesday, February 16 before the opening bell. The current Zacks Consensus Estimate for the fourth quarter is 32 cents per share, representing annualized growth of 11.13%.

With respect to earnings surprise, over the trailing four quarters, Comcast has outperformed the Zacks Consensus Estimate for all four quarters. The average earnings surprise was a positive 5.14%, implying that the company has outdone the Zacks Consensus Estimate by the same magnitude over the last four quarters.

Third-Quarter Performance

On October 27, 2010, Comcast reported its third quarter fiscal 2010 results. Adjusted earnings per share (EPS) in the reported quarter were 32 cents compared with 28 cents in the prior-year quarter. Adjusted EPS surpassed the Zacks Consensus Estimate of 30 cents. Better-than-expected results were due to solid customer growth, an improving advertising market and continued strength in Business Services.

GAAP net income was $867 million or 31 cents per share compared with $944 million or 33 cents per share in the prior-year quarter. However, the profit declined 8.2% year over year, partly due to costs related to its pending acquisition of NBC Universal.

Third quarter 2010 total revenue was $9,489 million, up 7.3% year over year. This was also better than the Zacks Consensus Estimate of $9,337 million.

Agreement of Estimate Revisions

In the last 30 days, out of the 22 analysts covering the stock, 4 analysts increased their EPS estimates while only 1 decreased his or her EPS estimate for fourth quarter 2010. Similarly, for first quarter of fiscal 2011, out of the 9 analysts covering the stock, 1 increased and 1 decreased.

For fiscal 2010, in the last 30 days, out of the 23 analysts covering the stock, 3 analysts increased their EPS estimates while none decreased their EPS estimates. Similarly, for fiscal 2011, out of the 24 analysts covering the stock, 6 analysts increased their EPS estimates and 2 decreased their EPS estimates.

Magnitude of Estimate Revisions

Despite the overall positive revision, earnings estimates for the fourth quarter 2010, in the last 30 days, remained flat at 32 cents. Similarly, for fiscal 2010 and 2011, the earnings estimates revisions were pegged at $1.26 and $1.47, respectively.

On January 28, 2011, Comcast completed the long-awaited acquisition of NBCUniversal. Presently, CMCSA is holding a 51% stake in NBCUniversal, which it has bought from General Electric Co. (GE). We believe that NBC Universal merger will bring positive synergies to the Company in terms of higher dividends and revenues.

Our Take

The company has become the largest integrated content development and distribution company of the U.S.after completing the acquisition of NBC Universal. We also remain very much optimistic regarding the company’s diversification, network upgrade and innovative product offering strategies. In the last one year, the company posted strong growth in revenue and free cash flow.

However, Comcast is facing severe competition from both telecom and satellite service providers that started offering subscription TV services at a low price.

The U.S. telecom giants are gradually expanding their fiber-optic networks. Verizon Wireless (VZ – Analyst Report) with FiOS network and AT&T (T) with U-Verse network are likely to make the entertainment, information, and communications market highly competitive. Recent growth of online video streaming companies such as Netflix Inc. (NFLX) and Hulu have become major threats to the company.

We maintain our long-term Neutral recommendation for Comcast. Currently, it has a Zacks #3 Rank, implying a short-term Hold rating on the stock.

COMCAST CORP A (CMCSA): Free Stock Analysis Report

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