CMCSA Stock Study (9-5-23)

Posted by Mark on November 22, 2023 at 06:48 | Last modified: September 5, 2023 14:41

I recently did a stock study on Comcast Corp. (CMCSA) with a closing price of $45.73. The original study is here.

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 (14%) 12/18.

Over the past decade, this mega-size (greater than $50B annual revenue) company has grown sales and earnings 7.6% and 10.5% per year (excluding ’22 EPS for reasons discussed in the original study). 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. PTPM leads peer and industry averages, ranging from 13.6% in ’20 to 18.1% in ’14 and ’17 with a last-5-year mean (excluding ’22) of 15.4%.

Also over the past decade, ROE trails peer and industry averages by going from 12.2% in ’13 to 17.0% in ’16 then falling to 14.4% in ’21 with a last-5-year mean of 14.8% (’22 excluded along with upside outlier of 39.8% in ’17). Debt-to-Capital is less than peer and industry averages, ranging from 47.8% in ’14 to 60.9% in ’18 with a last-5-year mean of 54.7%.

Although Interest Coverage and Quick Ratio are only 5.1 (mean of M* and Value Line) and 0.6 (M*), respectively, Value Line gives an A+ rating for Financial Strength. M* gives a “Standard” rating for Capital Allocation and writes:

     > We give Comcast a Standard Capital Allocation Rating. We believe
     > the firm’s balance sheet is sound and shareholder returns are
     > generally appropriate. The firm instituted a dividend in 2008 as
     > the business started to generate strong cash flows and has
     > increased its payout ninefold, or 16% annually on average.

M* also tags the company with a “Wide” economic moat.

With regard to sales growth:

• CNN Business projects 1.0% YOY contraction and 0.8% growth per year for ’23 and ’22-’24 (based on 27 analysts).
• YF projects YOY 1.0% contraction and 2.6% growth for ’23 and ’24, respectively (25 analysts).
• Zacks projects YOY 0.9% contraction and 2.8% growth for ’23 and ’24, respectively (7).
• Value Line projects 1.7% annualized growth from ’22-’27.
• CFRA projects growth of 1.3% YOY and 2.0% per year for ’23 and ’22-’24, respectively.
• M* offers a 2-year ACE of 0.9% growth per year.

I am forecasting just under the long-term estimate at 1.0% per year.

With regard to EPS growth:

• CNN Business projects 0.3% contraction YOY and 6.0% growth per year for ’23 and ’22-’24, respectively (based on 27 analysts), along with 5-year annualized growth of 10.0%.
• MarketWatch projects 8.5% and 8.2% growth per year for ’22-’24 and ’22-’25, respectively (31 analysts).
• Nasdaq.com projects 8.4% and 12.8% growth per year for ’23-’25 and ’23-’26 [8/9/1 analyst(s) for ’23/’25/’26].
• Seeking Alpha projects 4-year annualized growth of 10.2%.
• YF projects YOY growth of 4.4% and 10.8% for ’23 and ’24 (23) along with 5-year annualized growth of 7.4%.
• Zacks projects YOY growth of 4.7% and 10.5% for ’23 and ’24 (8) along with 5-year annualized growth of 9.5%.
• Value Line projects 8.0% annualized growth from ’22-’27.
• CFRA projects growth of 3.0% YOY and 6.9% per year for ’23 and ’22-’24, along with a 3-year CAGR of 8.0%.
• M* gives a long-term ACE of 13.9% annualized growth.

I am forecasting just below the long-term estimate range (mean of six: 9.8%). 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 past decade, high P/E ranges from 16.7 in ’19 to 23.0 in ’20 (’17 and ’22 excluded as downside and upside outliers of 8.9 and 43.1, respectively) with a last-5-year mean of 19.4. The last-5-year-mean average P/E is 16.3. I am forecasting below the range (sans outliers).

My Forecast Low P/E is 10.0. Over the past decade, low P/E ranges from 11.8 in ’19 to 15.4 in ’15 (’17 and ’22 excluded as downside and upside outliers of 7.2 and 23.5) with a last-5-year mean of 13.2 . I am forecasting below the range.

My Low Stock Price Forecast (LSPF) of $30.40 is default given initial value of $3.04/share. This is 33.5% less than the previous closing price and 7.0% greater than the 52-week low.

Over the past decade, Payout Ratio ranges from 28.1% in ’14 to 40.4% in ’20 (excluding outliers of 13.3% in ’17 and 89.3% in ’22) with a last-5-year mean of 33.2%. I am forecasting conservatively at 28.0% (only the downside outlier is less).

These inputs land CMCSA in the HOLD zone with a U/D ratio of 1.5. Total Annualized Return (TAR) is 10.0%.

PAR (using Forecast Average—not High—P/E) is 6.0%, which is less than I seek 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 166 studies (my study and 61 outliers excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio are 4.7%, 11.0%, 19.0, 13.2, and 29.2%. I am lower across the board. Value Line’s projected average annual P/E of 16.0 is lower than MS (16.1) and higher than mine (13.0).

MS high / low EPS are $2.99 / $1.58 vs. my $3.64 / $2.78 (per share). My forecast EPS range is higher because many MS studies use 2023 Q1 and Q2 EPS of $1.32/share and $1.58, respectively. I am excluding these low values. Value Line projects high EPS of $5.35, which makes mine look conservative.

MS LSPF of $26.40 implies a Forecast Low P/E of 16.7, which is higher than the above-stated 13.2. MS LSPF is 26.6% greater than default $1.58/share * 13.2 = $20.86, which supports MS low EPS as excessive. MS LSPF is also 13.2% less than mine.

For the first time ever, my TAR (over 15.0% preferred) is greater than [the 7.8% from] MS.

If I’m right about ’22 EPS being a nonrecurrent aberration, then rebound to the trendline should take place soon. Until/if that happens, I can’t claim any MOS as MS may be correct.

I track a few different valuation metrics. PEG is 1.3 per Zacks: fairly valued. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is expensive at 1.8 [using what I think is that ’22 lowball EPS number]. Kim Butcher’s “quick and dirty DCF” prices the stock at 9.5 * [$9.60 – ($1.60 + $3.50)] = $42.75, which suggests the stock to be about 6.5% overvalued.

I would look to re-evaluate the stock under $39. With a forecast high price of $68.10, I would estimate TAR to meet my personal criterion at or below $34/share.