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We reaffirm our long-term Neutral recommendation on Comcast Corp. (CMCSA - Analyst Report). Although the company’s fourth-quarter 2012 financial results fell short of the Zacks Consensus Estimates, the year-over-year growth was strong.
Why Kept at Neutral?
Comcast’s Cable business continued to beat market expectations and the NBC Universal division made a solid turnaround. In spite of challenges, the video operation continued with its positive momentum. Comcast has also completed its major technical innovations, such as DOCSIS 3.0, all digital networks, and a multi-platform content delivery network. Moreover, several newly launched services, such as Xfinity Home, Wi-Fi, X1 and high-speed Metro Ethernet will act as long-term growth catalysts for the company.
Nevertheless, following last year’s 40% stock price growth, we are apprehensive of restricted market gain in the near term. Hence, we see the Comcast shares as currently fairly valued. Comcast currently has a Zacks Rank #3 (Hold).
RISK/Reward Virtually Balanced
Comcast is gradually deploying its next-generation Xfinity TV, an on-demand, Web-based service, for subscribers, who will have access to both video programming and Internet. In the fourth quarter of 2012, the company gained a net 341,000 high-speed Internet subscribers and 168,000 telephony customers. Quarterly consolidated average revenue per user (ARPU) was $153.54, up 8.7% year over year. Moreover, Comcast has formed a deal with Fox Networks of News Corp. (NWSA - Analyst Report) to distribute Fox’s programming to its Xfinity customers.
Recently, Comcast has decided to purchase the remaining 49% stake of NBC Universal from General Electric Co. (GE - Analyst Report) for a total consideration of $16.7 billion. As the 100% owner of NBC Universal, Comcast has successfully transformed itself as a cable TV technology giant with state-of-the-art integrated content and distribution network. With NBC Universal in its kitty, we believe Comcast will become a major competitor to The Walt Disney Co. (DIS - Analyst Report).
Nevertheless, a major concern for the pay-TV industry is the prolonged macro-economic fluctuations in the U.S. Despite impressive subscriber retention, Comcast still lost 7,000 residential video subscribers in the reported quarter. Management is hopeful of seeing a net video subscriber addition in the near future. However, we do not foresee this in the next couple of quarters.
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