CMCSA Stock Study (6-5-23)

Posted by Mark on June 16, 2023 at 06:41 | Last modified: June 5, 2023 12:05

I recently did a stock study on Comcast Corp. (CMCSA) with a closing price of $39.19.

Value Line writes:

     > Comcast Corp. is a global media and telecommunications company.
     > Its Cable Communications segment (54% of adjusted ’21 revenues)
     > provides high-speed Internet, pay-TV, and voice services across
     > major U.S. markets under the Xfinity brand. NBCUniversal
     > includes: broadcast, cable, and streaming networks (NBC, Bravo,
     > USA, Peacock); TV/film studios (Universal Pictures,
     > DreamWorks); and theme parks (Universal Studios). Acquired
     > European pay-TV provider SKY plc.

Over the last decade, this mega-size (greater than $50B annual revenue) company has grown sales and earnings 7.6% and 4.6% per year, respectively. Sales are up and straight. EPS is generally up and straight with an upward spike in ’17 (possibly related to TCJA) and YOY declines in ’18, ’20, and ’22.

I will move to exclude 2022 earnings. As part of its annual impairment assessment, the company wrote down a loss of $8.6B to reflect an increased discount rate and reduced estimated future cash flows due to macroeconomics in [acquisition target] Sky’s territories. It also recorded loss due to its investment in Atairos: a strategic company Comcast established in 2016 focused on investing in and operating companies across a range of industries and sectors. This resulted in a ’22 loss of $2.23B.

Excluding ’22, CMCSA has grown EPS at an annualized rate of 10.5% over the last 10 years.

Over the same time horizon (again excluding ’22), PTPM has ranged from 13.6% (’20) to 18.1% (’14 and ’17) with a last-5-year mean of 15.4%. This leads peer and industry averages but is trending slightly down.

Historical ROE has been in the low-to-mid teens since ’13 (excluding 39.8% outlier in ’17). The last-5-year mean is 14.8% (again excluding ’22): less than peer and industry averages. Debt-to-Capital over the last five years has averaged 54.7%, which is less than peer and industry averages.

Although Interest Coverage and Quick Ratio are only 4.9 (mean of M* and Value Line) and 0.64, respectively, M* gives a Standard rating for Capital Allocation: “we believe the firm’s balance sheet is sound and that shareholder returns are generally appropriate.” Value Line gives an A+ for Financial Strength, and M* categorizes the company with a Wide economic moat.

With regard to sales growth:

• CNN Business projects 0.8% YOY contraction and 0.9% growth per year for ’23 and ’22-’24 (based on 27 analysts).
• YF projects YOY 0.8% contraction and 2.7% growth for ’23 and ’24, respectively (25 analysts).
• Zacks projects YOY 0.6% contraction and 2.7% growth for ’23 and ’24, respectively (7).
• Value Line projects 1.6% annualized growth from ’22-’27.
• CFRA projects growth of 1.2% YOY and 2.0% per year for ’23 and ’22-’24, respectively.
• M* gives a 2-year ACE of 0.8% growth per year.

I forecast long-term sales growth of 1.0%.

With regard to EPS growth:

• CNN Business projects flat YOY and 6.0% growth per year for ’23 and ’22-’24, respectively (based on 27 analysts), along with 5-year annualized growth of 13.0%.
• MarketWatch projects 6.7% and 7.0% per year for ’22-’24 and ’22-’25, respectively (31 analysts).
• Nasdaq.com projects 7.8% and 10.5% per year for ’23-’25 and ’23-’26 [10, 5, and 1 analyst(s) for ’23, ’25, and ’26].
• Seeking Alpha projects 4-year annualized growth of 9.8%.
• YF projects YOY 0.8% and 11.4% for ’23 and ’24, respectively (22), along with 5-year annualized growth of 7.4%.
• Zacks projects YOY 3.0% and 9.7% for ’23 and ’24, respectively (9), along with 5-year annualized growth of 12.0%.
• Value Line projects 7.0% annualized growth from ’22-’27.
• CFRA projects flat YOY and 5.6% per year for ’23 and ’22-‘24%, along with a 3-year CAGR of 7.0%.
• M* gives a long-term ACE of 14.1% annualized growth.

I am forecasting at the bottom of the long-term estimate range (mean of six: 10.6%). Last quarter, I was puzzled by the CNN Business long-term estimate of -5.6%. That may have been an error as it now shows +13.0%.

I will use ’21 EPS of $3.04/share as the initial value thereby discounting any growth occurring in ’22 (sans write-down for Sky). This is the same as projecting from the ’22 trendline ($3.35/share) with a 4.9% growth rate.

My Forecast High P/E is 16.0. Over the last decade, high P/E has ranged from 16.7 (’19) to 23.0 (’20) with a last-5-year mean of 19.4 (’17 and ’22 excluded due to downside and upside outliers of 8.9 and 43.1, respectively). I am forecasting below the range and below the last 5-year-mean average P/E of 16.3.

My Forecast Low P/E is 9.0. Over the last decade, low P/E has ranged from 11.8 (’19) to 15.4 (’20) with a last-5-year mean of 13.2 (’17 and ’22 excluded due to downside and upside outliers of 7.2 and 23.5). I am forecasting below the range.

My Low Stock Price Forecast (LSPF) is the default value of $27.40 (based on initial EPS of $3.04/share). This is 30.1% less than the previous closing price and 3.5% less than the 52-week low.

Over the last decade, Payout Ratio has ranged from 13.3% (’17) to 89.3% (’22). Excluding those two outliers, the range is 28.1% – 40.4% with a last-5-year mean of 33.2%. I am forecasting conservatively at 28.0%.

These inputs land CMCSA in the HOLD zone with a U/D ratio of 2.5. Total Annualized Return (TAR) is 13.4%.

PAR (using Forecast Average—not High—P/E) is 8.5%, which is decent for a mega-size company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 138 studies over the past 90 days (my study and 49 outliers excluded), averages (lower of mean/median) for projected sales growth, EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio are 4.7%, 11.7%, 19.3, 13.1, and 29.2%, respectively. I am lower across the board. Value Line projects an average annual P/E of 16.0, which is lower than MS (16.2) and higher than mine (13.0).

MS high and low EPS are $2.62/share and $1.32/share compared to my $4.26 and $3.04. Both MS numbers seem unreasonably low to me. I’m guessing many studies started with the ’22 EPS of $1.21/share that I excluded due to the one-time impairment charge. Value Line is doing the same in projecting 7.9% EPS growth/year from ’21 to ’27. MS using $2.62/share implies 2.4% EPS contraction/year from ’21 to ’27, which is probably an oversight.

MS LSPF of $24.50 is 10.6% less than mine: a more conservative projection. However, it implies a low P/E of 18.6 (versus the above-stated 14.4) and is 41.7% greater than the MS default of $1.32 * 13.1 = $17.29. I think such a large discrepancy expresses confusion about the initial value chosen.

PEG ratio is another value check I have recently begun to monitor. Zacks lists forward PEG as 0.87. A generally accepted upper limit is 1.0 – 1.5, but it’s also good to compare against the industry average [for which I don’t have a number].

MOS seems robust in this study. I would look to invest under $37/share.