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Analyst Blog

We reaffirm our long-term Neutral recommendation on Comcast Corp. (CMCSA - Analyst Report). The company reported strong financial results for the second quarter of 2013. Both the top and the bottom line beat the Zacks Consensus Estimate. Comcast currently has a Zacks Rank #3 (Hold). We believe Comcast is currently fairly valued.

Why Kept at Neutral?

Comcast’s Cable business maintained its strong performance and the struggling NBC Universal segment witnessed an improvement. As a result, Comcast generated a record-high free cash flow. The company has already completed its major technical innovations, such as DOCSIS 3.0, all digital networks and a multi-platform content delivery network. Moreover, newly-launched services such as Xfinity Home, Wi-Fi, Streampix, X1, upcoming X2 and the high-speed Metro Ethernet are several long-term growth catalysts for the company.

In the second quarter of 2013, Comcast gained a net 187,000 high-speed Internet subscribers and 161,000 telephony customers. Quarterly consolidated average revenue per user (ARPU) was $160, up 7.4% year over year. Comcast’s bundled services are lucrative growth opportunities. Nearly 77% of its video customers subscribe to two services and almost 42% customers subscribe to three services.

On the other hand, continued loss of video customers is a concern. The cable TV operators are gradually losing their hold in the U.S. pay-TV market. Comcast lost 159,000 residential video subscribers in the second quarter of 2013. Nine large cable TV operators, including Comcast and Time Warner Cable Inc. (TWC - Analyst Report), together lost a whopping 555,000 video subscribers in the same timeframe. Whereas, telecom giants, Verizon Communications Inc. (VZ - Analyst Report) and AT&T Inc. (T - Analyst Report), jointly gained 373,000 subscribers in the same quarter.

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