Summary
- Comcast is an incredible compounder, growing EPS by 19% per year going back to 2007, and only trading at 12x 2020 earnings today.
- While many non-cyclicals like REITS and utilities are trading at all time high multiples, surprisingly recession resistant Comcast is trading at an historic low.
- With cable video representing only 17% of the company’s EBITDA, and faster High Speed Data growth, there should continue to be years of growth.
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Comcast (CMCSA) is a stock that has performed inline with the market over the past two years, up 12%. However, EPS has grown just in two years by 47% (from $1.73 in 2016, to $2.55 in 2018), meaning CMCSA has gotten quite a bit cheaper.
Overall, amidst the auction of the Fox assets in early 2018, fears that Comcast would overpay for Fox’s entertainment networks crushed the stock. Comcast dropped from $42 to $31. Eventually, Disney won, and Comcast ended up purchasing Fox’s 39% stake in Sky Ltd (and tendering for the balance of shares publicly). They paid $48BB, a somewhat pricey 13x EBITDA multiple.
With fears of their cable business in secular decline, the market has repriced Comcast from a 17.2x average P/E multiple, to a 13.7x multiple today. But the story here is far more complex. The company is a diverse mix of media and entertainment assets, from NBC to Universal Studios theme parks to high speed data.
The reality is that the video cable business today is only approximately 17% of total company EBITDA. Even as video subs decline at the current 2% per year rate, high speed data subscribers are growing 5%, and are far higher margin. In addition, HSD subscribers are twice as profitable as video subs, so growth looks assured even in a streaming world.
Overall while it is not easy to model such a diverse empire, earnings should continue to grow 10-12% per year as high speed data growth far outpaces cable losses. I estimate 2020 EPS at $3.56 next year, with FCF per share of over $4.
At roughly $46, the stock is a bargain at 13x forward earnings and a generous 8.8% FCF yield. I would be surprised if the market didn’t eventually re-rate Comcast back to a 15x multiple of FCF again once the cable video business falls to sub 10%.
