Comcast (CMCSA) is a large entertainment and communications company. The company was founded back in 1963 and currently has a $106 billion market cap. The company operates in three primary business segments:
- Cable Communications
- Sky (a leading entertainment company in Europe)
Comcast has managed to consistently grow its adjusted earnings-per-share over the last decade despite the rise of streaming and “cord cutting” fears. From 2010 through 2019, adjusted earnings-per-share increased every year and grew at an excellent annualized compound rate of 19.5%.
The company has managed this impressive growth through a mix of share repurchases and revenue growth. Indeed, revenue increased every year over the last decade at Comcast.
And revenue and earnings-per-share aren’t the only metrics consistently rising over the last decade for Comcast. The company’s per-share dividend increased from $0.19 in 2010 to $0.84 in 2019 as shareholders took part in the rising income of Comcast.
With a history of both success and stability, one might expect this blue chip stock to trade for a lofty valuation multiple. Fortunately for investors today, that’s not the case. The company is trading for just 14x fiscal 2019’s adjusted earnings per share. For comparison, the company has traded at a price-to-earnings ratio of around 16 on average over the last decade.
There’s much to like about Comcast as an investment. It is a shareholder-friendly company, as evidenced by its dividend growth and share repurchases. It has a history of growth. And, it has a relatively cheap valuation currently coupled with a decent 2.1% dividend yield. That might be what institutional investors like SRS Investment Management – which has $282 million stake in Comcast – see in the company.
With that said, there is some uncertainty surrounding Comcast now. The company’s most recent quarterly earnings release showed uncharacteristic declines. Revenue declined 11.7% versus the same quarter a year ago and adjusted earnings-per-share declined 11.5% year-over-year.
Much of the decline came from the NBCUniversal segment’s Theme Park unit. The company’s Theme Park business unit generated an adjusted EBITDA loss of $399 million versus a profit of $590 million in the same quarter a year ago due mainly to closures from COVID-19. Excluding this struggling business unit, Comcast would’ve generated adjusted EBITDA growth versus the same quarter a year ago.
We firmly believe that Comcast’s Theme Park unit’s struggles are temporary. The Theme Park unit will likely return to profitability and ultimately growth when usual consumer patterns resume. In the meantime, the rest of Comcast’s business units as a whole continue to deliver strong cash flows.
Investors who purchase shares of Comcast today have the potential for continued growth and valuation multiple expansion. In addition, the stock offers investors a decent-if-unspectacular 2.1% dividend yield for some additional income to collect while waiting for Comcast’s business growth to resume.
Ben Reynolds is CEO of Sure Dividend. Sure Dividend helps individual investors build high quality dividend growth stock portfolios for the long run.
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