Is Comcast Stock a Buy?


By Billy Duberstein, MotleyFool

With the market recently surging to all-time highs, investors may wish to look for more defensive names in the new year. One such name is Comcast (NASDAQ:CMCSA), America's largest broadband and cable company, which also owns NBCUniversal and Sky Plc. It pays a 1.8% dividend and trades at a reasonable 17.4 times next year's earnings estimates. That compares with the 26 forward P/E ratio for the S&P 500 index.

At first glance, Comcast looks like a solid value relative to the rest of the high-flying market, but is that really true?

TV screens superimposed over a city skyline at night.


Comcast's main division: High-speed broadband

Comcast's core strength lies in its high-speed broadband offerings. Even as cord-cutting swept the traditional media industry and the pandemic caused a recession, Comcast continued to grow its highly profitable broadband subscriptions. Often, consumers only have one or two choices for their broadband provider. Comcast's leading coaxial footprint and technology make it a must-have product, especially in the stay-at-home economy. Last quarter, the cable communications division, which includes broadband and traditional cable video, grew customer relationships 4.9%. It also grew revenue 2.9% (or 3.9%, when excluding fee adjustments made for regional sports network discounts).

While traditional cable continued to decline by 2.1%, high-speed internet grew a healthy 10.1%, leading to EBITDA growth of 10.5%. Comcast's local networks also benefited from healthy political advertising in a very expensive election year. As Comcast's other divisions have struggled, its core remained strong, making up 84% of adjusted EBITDA company profits.

The recovery divisions: NBCUniversal and Sky

While Comcast had a nice pandemic-resistant business in broadband, its other divisions have struggled. NBCUniversal is home to NBC, CNBC, MSNBC, USA, Bravo, the Golf Channel, and Universal Studios. Sky is a powerful force in Europe, with nearly 24 million subscribers. It offers satellite TV, over-the-top streaming boxes, and proprietary sports and entertainment content. It has more recently been rolling out high-speed fiber broadband.

Since they are more tied to both the traditional cable TV bundle as well as advertising, these businesses have struggled during the pandemic. Last quarter, NBC's broadcast revenue and profits were up, but cable TV was down, filmed entertainment was down amid theater closures, and its Universal theme parks were way down amid the pandemic.

Still, there is hope for a much better 2021. With a vaccine now imminent, theme parks should come back next year. Universal is partnering with Nintendo (OTC:NTDOY) to open Super Nintendo World in Japan in February. It has ambitious expansion plans in Orlando, with its Epic Universe park set to open in 2023. A vaccine should also bring back the full economy, which should help NBCUniversal and Sky's advertising business.

Pivoting to combat risks

Of course, Comcast is not completely risk-free. The two major longer-term issues it must contend with are rampant cord-cutting and the rise of 5G as a potential broadband substitute.

To combat cord-cutting, Comcast unveiled its streaming service Peacock this summer. According to NBCU CEO Jeff Shell, the service has already reached 26 million subscribers across all three tiers. That's pretty impressive, considering Peacock is still without some of its major content like The Office, which NBC will get back from licensing on Jan. 1.

In terms of the 5G threat: Comcast began offering its own mobile service in the past couple of years, which piggybacks on the Verizon (NYSE:VZ) network. So, it's fast establishing a bundled mobile relationship with customers. Last quarter, Comcast grew its wireless revenue by 22.8% and raked in $400 million. Comcast seems set to become at least a decently large wireless retailer in the space.

The Verizon relationship could very well meld into a 5G relationship. Verizon appears content wholesaling its network to Comcast today, so it's unclear why that wouldn't be the case tomorrow. In addition, the limitations of 5G technology could make it difficult to deploy in crowded, dense cities. That disruption of broadband will be very difficult for mobile operators to pull off in many metro areas. If it does happen, it will be very slow.

A solid stock

Despite its recent run, Comcast is "only" up about 15.8% on the year -- just about in line with the market. That has left Comcast with a still-reasonable valuation given its diverse business mix of at-home and out-of-home segments.

CMCSA Year to Date Total Returns (Daily) Chart


All in all, Comcast is one of the few reasonably priced stocks in the communications and media industry that also pays a reasonable dividend. Comcast has also raised that 1.8% dividend every year for the past 12 years, increasing the payout a whopping 6.6 times over that time.

Comcast still makes a fine buy today, especially for those at or near retirement.

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