Summary
- The company has grown its earnings by a double-digit CAGR rate in the last decade.
- Comcast has a diversified portfolio of media assets and the largest home internet delivery business in the US.
- Although expensive, the Sky acquisition has already contributed to the top and bottom line and will be a catalyst going forward.
- Streaming service announced recently will further improve the portfolio of services offered by Comcast.
- Due to the growth through acquisitions, the balance sheet is overly levered by my standards.
Thesis
Comcast (CMCSA) is a telecommunications conglomerate that is the largest home internet provider in the US and its media business is home for some of the most popular content in the world. The company has grown its bottom line by an impressive CAGR of 13% in the last 10 years thanks to organic growth and acquisitions and remains well positioned to keep growing earnings at a double-digit rate as the management is taking proactive steps to further improve their portfolio and cross-selling ability.
Source: Comcast Presentation
Sky Acquisition
Although the company got involved with a bidding war for Sky, I believe that is a great asset going forward due to its leading position in entertainment and communications in Europe. Due to its position, Sky can cross-sell to customers and provide the all-in-one package of broadband, fibre, films, tv-shows, and sports. The TV-rights for the best soccer leagues in Europe are very competitive, especially in the English Premier League. Having a long-term relationship with the EPL since its inception in 1992 gives them an advantage over their rivals offering similar services. Sky Sports that shows the Premier League games is also offered by other cable providers in Europe such as BT and Virgin in their bundles, but it is significantly cheaper to go with a total Sky package for sports fans mainly interested in soccer, which is the case for many countries in Europe. In addition to soccer, Sky Sports also covers F1, golf, NFL, etc.
Source: Sky.com
Latest Earnings
Q2 2019 showed continuous growth for this company. The main catalyst for the top and bottom line growth was the Sky acquisition completed last year. Revenue was up 23.3% YOY, adjusted EBITDA up 17.5%, and adjusted EPS up 13%. Although the Sky revenue helped the top-line massively, it still came in below expectations and NBC Universal earnings also came in a little bit lower than expected.
Streaming Service
The company also recently announced their streaming service, which will be called Peacock. It will exclusively feature popular shows such as The Office and Parks&Recreation. Studios such as DreamWorks Animation and Universal Pictures will also produce original content for the service. Peacock will be both subscription-based and ad-supported but no further details regarding pricing, etc. were released. The company will probably offer it alongside its other services, as they recently announced that their Xfinity customers get a streaming box for free that allows them access to Peacock once it launches. Whilst it remains to be seen how successful Peacock will be in the heated streaming space, The Office and Parks&Recreation are some of the most-watched shows and having them exclusively at Peacock will be a potential catalyst.
Dividend
The current dividend yields 1.8%, which is in line with the SPY, but it has grown at a double-digit CAGR of 12% over the last 11 years. The latest increase was just below the average at 10.5%. The dividend is covered safely, with the payout at around 30% of yearly earnings. Shareholder yield has also been enhanced by buybacks, with the share count reduced over 20% in the last years. The 5-yr average shareholder yield has been 3.65%. Due to my investment time horizon, the current yield is too low for me, but this might be an interesting pick for income investors with longer time horizons. The dividend can grow alongside earnings and can additionally be boosted by lifting the current low payout ratio.
