19% Stock Price Rise In 16 Days! What Makes Comcast Still Attractive?

After almost a 19% rise in Comcast’s (NASDAQ: CMCSA) stock from $32 on 1^st April 2020 to $38 at the end of 17^th April 2020, at the current price of $38 per share, we believe that Comcast’s stock could see a further upside considering the expected launch of its streaming platform, Peacock, and the positive impact of the ongoing lockdown due to coronavirus on streaming players. The stock is at the same level where it was at the end of 2017, a little over two years ago, whereas it is 15% higher than its closing price at the end of 2019. Our dashboard What Factors Drove 0.2% Change In Comcast Stock Between 2017 And Now? provides the key numbers behind our thinking, and we explain more below.

The stock price rise of the last two years is justified by the roughly 28% growth seen in Comcast’s revenues from 2017 to 2019. However, higher revenue was completely offset by a 55% decline in net income margin. Margin dropped from 26.7% in 2017 to 12% in 2019, which in turn led to a 41% drop in EPS from $4.83/share in 2017 to $2.87/share in 2019. Drop in EPS was slightly lower than the drop in margins, mainly due to a 3.3% decrease in shares outstanding.

Drop in earnings was more than offset by a 97% rise in the P/E multiple from 7.9x at the end of 2017 to 15.5x at the end of 2019. P/E multiple increased due to drop in EPS as well as rise in stock price. Despite a drop in EPS, the stock price went up as the sharp decline in margin in 2018 was primarily due to margins being unusually high in 2017 on account of large tax benefits received. Margins remained almost flat in 2019. This signified that lower profits in 2018 did not reflect a deterioration in the company’s fundamentals. Thus, despite a drop in reported EPS, the stock price increased due to the future growth outlook. However, in 2020, the P/E multiple saw a marginal decline to 13.3x currently due to the coronavirus crisis, but is still close to 70% higher than the multiple at the end of 2017.

Effect of Coronavirus

The global spread of coronavirus has led to lockdown in various cities across the globe, which has affected industrial and economic activity. The shutdowns in major cities across the globe has led to people sitting at home. Home confinement is likely to lead to higher demand for streaming services and home entertainment options. Though lower consumer spending could adversely affect Comcast’s cable TV revenues, the launch of Peacock – Comcast’s streaming platform – in mid-April 2020 and people confining themselves to their home due to the spread of coronavirus, is likely to prove beneficial for the company. Though a new player like Comcast will have to compete with giants such as Netflix, Amazon, and Disney, we believe that higher demand for streaming could possibly lead to a strong medium term outlook for the company, despite a dent to its traditional revenue segments. We believe Comcast’s Q1 2020 results will confirm this reality with a possible drop in revenues, but we do not think the company will decrease its full year 2020 outlook significantly.

Comcast stock is down about 12% since January 31 after the World Health Organization (WHO) declared a global health emergency in light of the spread of coronavirus. During the same period, the S&P 500 index saw a decline of about 11%. Thus, Comcast’s stock has performed in tandem with the broader market during this crisis so far. If there are no signs of containment of the virus around the Q1 earnings announcement, there is a possibility of the stock remaining around the current level. However, if there are clear signs of virus containment by early May, the stock could see a modest upside.

View our dashboard analysis Coronavirus Trends Across Countries, And What It Means For The U.S. for the current rate of coronavirus spread in the U.S. and forecasts on where it could be headed, based on comparison with other countries. Our dashboard -28% Coronavirus crash vs 4 Historic crashes builds a more complete macro picture of historic crashes and how the sell-off during early March compares.

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