Markets

Comcast (CMCSA): Long-Term Prospects Bright, Costs Rise

On Feb 11, we issued an updated research report on leading U.S. cable MSO (multi-service operator) Comcast CorporationCMCSA .

Comcast reported mixed financial results in fourth-quarter 2015 wherein earnings missed the Zacks Consensus Estimate while revenues surpassed the same. Meanwhile, the company witnessed strong subscriber gain. Additionally, management significantly raised its shareholders' wealth.

Notably, the board of directors of Comcast has approved a 10% hike in its quarterly cash dividend on common stock to $0.275 from $0.25. The dividend will be paid on Apr 27, 2016, to shareholders of record as of Apr 6, 2016. Also, the board of directors has increased the company's stock repurchase program authorization to $10.0 billion. Notably, Comcast plans to repurchase $5.0 billion during 2016, subject to market conditions.

Having acquired the entire stake in NBC Universal from General Electric Co., Comcast is leaving no stone unturned to revamp Universal Pictures amid intense competition. Filmed Entertainment segment recorded the best figures in its history in 2015. Notably, Jurassic World , Furious 7 , Minions and Fifty Shades of Grey , along with other titles, were huge successes. With a strong and growing list of franchises, we expect Universal Pictures' strong business momentum to continue in 2016 as well. Also, Comcast is investing heavily in its theme park business for growth.

Meanwhile, after tasting considerable success at the small and medium-sized business (SMB) segment, Comcast now aims to expand its business services division to cater to large enterprises. We believe the company's various initiatives in the large businesses space will help it gain traction in the business services segment apart from boosting revenues.

Also, Comcast has started deploying fiber-based 2 gigabits per second (2 Gbps) residential broadband Internet services in certain regions. Known as Gigabit Pro, this new service runs on fiber-to-the-home (FTTH) technology. Meanwhile, Comcast is currently planning the launch of its DOCSIS 3.1 compliant Gigabit Internet service later this year. We believe Comcast's DOCSIS 3.1 and Gigabit Pro rollout is slated to fuel growth for the company.

However, growing competitive threat coupled with the ongoing consolidation trend among telecom and cable TV operators may generate significant financial fluctuations for the company.

Another major concern for Comcast is its spiraling programming expenses. Notably, management expects programming expense to increase roughly 10% in 2016 mainly due to several contract renewals in the first quarter, coupled with increases in re-transition consent fees and sports programming costs.

Also, Comcast has a substantially leveraged balance sheet. At the end of fourth-quarter 2015, the company had $2,401 million in cash and cash equivalents and around $52,621 million of outstanding debt compared with $4,512 million and $48,234 million, respectively, at the end of 2014. Meanwhile, the debt-to-capitalization ratio stood at 0.48 versus 0.45 at the end of 2014. Such high debt levels may impede sufficient cash flow generation, which is needed to meet future debt obligations. Moreover, the company's decision to repurchase shares, raise dividends and renew its 12-year contract with IOC will dent the cash balance of the company considerably.

Zacks Rank & Stocks to Consider

Comcast currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the sector include Time Warner Inc. TWX , AMC Networks Inc. AMCX and Nexstar Broadcasting Group, Inc. NXST . All the stocks carry a Zacks Rank #2 (Buy).

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.Click to get this free report >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

TIME WARNER INC (TWX): Free Stock Analysis Report

NEXSTAR BRDCSTG (NXST): Free Stock Analysis Report

COMCAST CORP A (CMCSA): Free Stock Analysis Report

AMC NETWORKS- A (AMCX): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

AMCX NXST CMCSA

Other Topics

Stocks

Latest Markets Videos

    Zacks

    Zacks is the leading investment research firm focusing on stock research, analysis and recommendations. In 1978, our founder discovered the power of earnings estimate revisions to enable profitable investment decisions. Today, that discovery is still the heart of the Zacks Rank. A wealth of resources for individual investors is available at www.zacks.com.

    Learn More