Earnings Preview: Comcast Corp.

Comcast Corp. (CMCSA) is slated to release its first quarter 2011 results on Tuesday, May 2, 2011, after the closing bell. The current Zacks Consensus Estimate for the first quarter is pegged at 35 cents per share, representing an annualized growth of 13.21%.

With respect to earnings surprises over the trailing four quarters, Comcast has outperformed the Zacks Consensus Estimate in all the four quarters. The average earnings surprise was a positive 4.85%, implying that the company has outdone the Zacks Consensus Estimate by the same magnitude over the last four quarters.

Fourth Quarter Recap

On February 16, 2011, Comcast reported its fourth quarter 2011 financial results. GAAP net income for the fourth quarter 2010 was $1,018 million or 36 cents per share, compared with $955 million or 33 cents per share in the prior-year quarter. Adjusted earnings per share (EPS) in the reported quarter were 34 cents, which surpassed the Zacks Consensus Estimate of 32 cents.

Fourth quarter 2010 total revenue was $9,721 million, up 7.2% year over year. Total revenue also beat the Zacks Consensus Estimate of $9,555 million. During the quarter, all the three segments of the company witnessed revenue growth, with Advertising revenues flourishing the most (up 29 % year over year).

Agreement of Estimate Revisions

In the last 30 days, out of the 21 analysts covering the stock, 1 analyst increased its EPS estimates for the first quarter of 2011 while 1 reduced its estimate. Similarly, for the second quarter of fiscal 2011, out of the 21 analysts covering the stock, 2 analysts increased their EPS estimate while 1 decreased it.

For fiscal 2011, in the last 30 days, out of the 25 analysts covering the stock, 5 analysts increased their EPS estimates and 1 analyst decreased its estimates. Likewise, for fiscal 2012, out of the 20 analysts covering the stock, 4 analysts increased their EPS estimates while 1 slashed its EPS estimates.

Most of the analysts remained optimistic on Comcast as we believe that the merger with NBC Universal will fetch positive synergies for the company going forward.

Magnitude of Estimate Revisions

During the last 30 days, the Zacks Consensus Estimate was in line with the current estimate of 35 cents for the first quarter of 2011 while for the second quarter of 2011, Zacks Consensus Estimate was 5 cents above the current estimate. Similarly, for fiscal 2011, the Zacks Consensus Estimate was a penny below the current estimate of $1.52. However, for fiscal 2012, the Zacks Consensus Estimate was in line with the current estimate of $1.75.

Earning Surprises

In the previous quarter, Comcast reported EPS of 34 cents, which beat the Zacks Consensus Estimate by 2 cents. The current Zacks Consensus Estimates for the ongoing quarter contains a 0.00% upside potential while for the upcoming quarter, it reflects a 7.69% upside potential (essentially a proxy for future earning surprises). Similarly, for fiscal 2011 and 2012, the Zacks Consensus Estimate upside potential is 4.61% and 5.71%, respectively.

Our Recommendation

Comcast is all set to become a media powerhouse armed with its unique control over both content and distribution after completing the acquisition of a controlling stake in NBC Universal. The company is also aggressively deploying the DOCSIS 3.0 (also called Wideband) technology to upgrade its existing customers to high-speed network together with all digital networks.

However, we believe that Comcast is fairly valued at current levels as the stock price has moved up by a whopping 56% in the last year. Moreover,stiff competition from formidable rivals like Time Warner Cable(TWC) and other satellite operators like DIRECTV (DTV) and DISH Network Corporation (DISH) will most likely make the market highly competitive.

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

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