Comcast Gets a Boost from Improving Subscriber Trends

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CMCSA: Comcast logo
CMCSA
Comcast

Comcast (NASDAQ:CMCSA) released its Q4 and full year 2011 results today and there are signs of solid improvement in subscriber trends and free cash flow that the company can generate in the future. While its rival Time Warner Cable (NYSE:TWC) continued to lose well over 100,000 pay-TV subscribers to companies such as AT&T (NYSE:T) and DirecTV (NASDAQ:DTV), Comcast demonstrated a significant improvement as we previously expected (see article Comcast Earnings Preview: What We Are Watching).

In addition to this, the company has managed to push down capital expenditures for the whole year 2011, and expects them to go down further (as % revenues) in 2012. This bodes well for cash generation and for investors. The stock jumped by more than 5% on earnings announcement. We are in process of updating our price estimate for Comcast in light of this earnings release.

See our complete analysis for Comcast

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Subscriber Loss Drops Significantly

Compared to a loss of 165,000 pay-TV subscriber in Q3 of 2011 and about 135,000 pay-TV subscriber in Q4 of 2010, Comcast lost a mere 17,000 pay-TV subscribers in Q4 of 2011. This is a significant improvement and something that we had anticipated. Comcast has been investing in its on-demand service and overall customer service and that has paid off. Although, it might be premature to say that Comcast can return to pay-TV subscriber growth in the next couple of quarters, we can definitely say that the future is looking good.

If Comcast can get back to its 2007 pay-TV market share levels by end of our forecast period, there can be close to 10% upside to our price estimate. It is going to be a difficult road to achieve such a target, especially with a sluggish recovery in the housing market. The pricing and add-on streaming services such as Xfinity are going to play a crucial role.

Capital Expenditures Going Down

The capital expenditures came down from about $4.9 billion in 2010 to about $4.8 billion in 2011. Going forward, capital expenditures (as % of revenues) will go down further. The days of intensive capital spending are over at least for a while as Comcast already has infrastructure in place. Now all they need to do is invest in more advanced set-top boxes and in improving their Xfinity service so as to provide an enhanced experience to subscribers. This bodes well for the company. Currently our capital expenditure forecast is a little aggressive but we expect to tone it down as we update our pricing model. This could unlock some value and raise our price estimate.

Our price estimate for Comcast stands at $26.60, implying a discount of little under 10% to the market price.

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