A Closer Look At Comcast’s Valuation

+10.26%
Upside
43.35
Market
47.80
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CMCSA
Comcast

The media industry is in a transformative phase, as streaming media and live videos on social media take center stage, threatening the traditional pay TV industry. Nevertheless, Comcast (NASDAQ: CMCSA) was able to grow its cable revenues from $20.5 billion in 2013 to over $23 billion in 2017 despite the threat of cord-cutting. In fact, Comcast’s consolidated revenues grew 6% year-over-year (y-o-y) to $44.5 billion, and its adjusted EBITDA grew 4% y-o-y, reflecting solid growth at Cable Communication and NBCUniversal, in the first half of fiscal 2018 as well. Comcast continues to benefit from gains in broadband revenues, which has helped the company offset declines in video revenues (as residential subscribers continue cutting the cord).

We have summarized our forecasts for Comcast’s fundamental value based on expected 2018 results in an interactive model. You can modify assumptions such as changes in expected segment revenue or EBITDA margins to see how they impact the company’s value. The image below shows one of the key steps in identifying Comcast’s valuation sensitivity to changes in its segment revenues. We detail how changes in revenue or segment EBITDA margin impacts total EBITDA, which then impacts its enterprise value (assuming a constant EBITDA multiple).

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Comcast saw its stock grow nearly 15% in 2017, due in part to its streaming products and X1 services. However, the stock is now down more than 10% over the course of 2018, due to weakness in its pay-TV business as a result of cord cutting. The company’s stock price has fluctuated between $30 and $43 since the beginning of the year. We have maintained our long-term price estimate for the company at $41. Our price estimate is around 10% ahead of the current market price, as we expect the company to benefit from its streaming and broadband services in 2018.

We expect Comcast to report a minor loss in cable TV subscribers due to competition and cord cutting measures in the second half of fiscal 2018. While cord cutting is likely to weigh on its revenues, the popularity of Xfinity Double and Triple Play bundling should continue to largely offset these declines. Accordingly, we expect the subscriber losses to have a fairly limited impact on the company’s top line going forward. In addition, Comcast is also aggressively pursuing over-the-top (OTT) streaming services, with the launch of Xfinity Stream and the recently rolled out Xfinity Instant TV across markets that the company already serves. Although the company currently does not provide the breakdown for its OTT service, we believe that the streaming service will be instrumental in retaining and attracting consumers for Comcast’s cable offerings. NBCUniversal’s cable network and broadcasting revenues are likely to improve as the increases in contractual rates could increase revenues going forward. Theme park revenues have grown in the fiscal first half due to increases in guest spending and higher guest attendance. We expect these trends to continue in the second half of fiscal 2018 as well. Comcast has been increasing its investments in this business as it plans to open new attractions each year in the U.S. to boost its share in the growing market. Additionally, it has planned a $3.3 billion investment to build a theme park in Beijing by 2020.

Our forecasts for the year are summarized in our dashboards for Comcast. If you have a different view, you can modify various inputs to see how updated inputs impact the company’s valuation. You can also share the links to scenarios created on our platform.

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