Comcast: Sleep Easy At Night And Watch The Dividends Grow

Comcast: Sleep Easy At Night And Watch The Dividends Grow

Cindy Ord/Getty Images Entertainment Investment Thesis

The current market environment is uncertain; inflation and the Ukraine crisis are outside investors’ control. At times like this, you should invest in only the highest-quality companies with great free cash flow, solid balance sheets, and secure and growing dividends.

Comcast Corporation ( CMCSA ) fits all the above criteria. I was happy to start a position around $48 per share and will add shares if the market continues to undervalue the business. The current share price provides investors with the potential to make significant returns over the coming years. Company Overview

Comcast splits its results into 3 main segments. Firstly, representing around 50% of fourth quarter 2021 revenue is “Cable Communications.” This is made up of several sub-elements, including broadband and wireless, video, business services, and advertising. This is the core of the business and produces substantial revenues.

Secondly, there is an “NBCUniversal” segment, which represented around 30% of fourth quarter revenue. This is made up of media, studios, and theme parks. Unsurprisingly, this segment showed strong growth compared to 2020 and we can expect this to continue as the pandemic impacts subside.

Finally, most familiar to myself in the UK we have the “Sky” segment. This made up the remaining 20% of fourth quarter revenue. Sky is a subscription service in the UK where consumers pay to receive exclusive sky content which currently includes the most premier league football games of any provider. Sky also offers broadband and internet connectivity to UK households. Q4 Results & Guidance

Comcast posted revenue of $30.3 billion in the fourth quarter, up 9.5% from 2020. Full year revenue grew 12.4% to $116.4 billion. Looking at each segment of the business, Cable Communications grew by 11.6% in 2021. NBCUniversal grew by 20.3% in 2021. Sky grew by 3.1% in 2021 once currency changes are excluded.

Alongside the strong financial performance, management made several announcements on capital allocation in its earnings release. Firstly, the dividend was increased by 8% to $1.08 per share annualized. Secondly, the share repurchase authorization was increased to $10 billion (roughly 5% of the current market capitalization).

2021 was a record year for Comcast, according to Management, this was the “highest full year revenue, adjusted EBITDA, adjusted EPS, and free cash flow on record. We continue to execute extraordinarily well, strengthening our leadership position in connectivity, aggregation, and streaming”.

Management believes that there are many future growth opportunities ahead and is prioritizing “increasing the capacity of our network in the U.S. and further improving our world-class broadband experience.” The growth of Comcast has been consistent as consumers have become more connected in the last 20 years. This trend shows no signs of slowing down, and investors should have faith in management to continue to execute. Competitors

The main competitors to Comcast depend on the operating segment. In Cable Communications, there is strong competition from companies such as Verizon Communications Inc ( VZ ), AT&T Inc ( T ) and T-Mobile US, Inc ( TMUS ). This is a very competitive market with providers offering discounts to customers to switch to them. The offering from these companies is often similar so consumers tend to choose a provider based on price. Despite this, the market is growing as a whole with 5G likely to offer Comcast further growth in the coming years. Many of the direct competitors (namely Verizon and AT&T) are in worse financial condition than Comcast. This is a huge advantage for Comcast who can invest consistently and eventually take market share from its competitors. The large amount of capital expenditure required to operate these networks acts as a barrier to entry for new companies.

In NBCUniversal, the main competitor is The Walt Disney Company ( DIS ). The competition in this segment is much less significant than Cable Communications. In many cases, consumers tend to have a preference for Disney theme parks and studios when they have younger children, but then Universal theme parks appeal more to teenagers and young adults. I would describe this market as a duopoly, with Comcast and Disney effectively in control of the theme park and studio market.

In the UK, Sky faces competition from new content producers, including Netflix Inc ( NFLX ), Apple Inc ( AAPL ) and Inc ( AMZN ) along with legacy UK-based companies such as BT Group plc ( OTCPK:BTGOF ). Clearly, this has slowed down growth of Sky in recent years and there are no signs of this trend reversing. Sky does still have an attractive offering […]

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