Will Comcast Stock Return To Pre-Inflation Shock Highs?

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Comcast

Comcast stock (NASDAQ: CMCSA) currently trades at $40 per share, about 35% below the peak of $61.75 seen in September 2022 and it appears that the stock has some room for gains. Comcast, one of the country’s largest cable tv and internet players, saw its stock trading at around $39 in early June 2022, just before the Fed started increasing rates, and is currently trading around the same level. The stock has gained over 30% since its low in September 2022, aligning with the S&P 500, up 21% during this period. Comcast stock has been weighed down by a couple of factors, including slowing growth of the broadband market after a surge seen through Covid-19. Moreover, Comcast is also being hurt by mounting competition from wireless carriers, who have been leveraging their newly built 5G networks to offer fixed-wireless broadband services.

The 30% rise in the stock since September 2022 has been driven by a steady decline in the inflation rate in response to the Fed’s aggressive rate hike plan – although investors still have concerns about a potential recession.

Returning to the pre-inflation shock level means that CMCSA stock will have to gain more than 50% from here. However, we do not believe that will materialize any time soon and estimate Comcast’s valuation to be around $44 per share, about 10% ahead of the current market price. While Comcast’s relatively steady cash flows from its broadband operations and the strong performance of its theme parks are positive, the company’s media business faces pressures, amid high inflation and weaker spending by marketers.

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Our detailed analysis of Comcast upside post-inflation shock captures trends in the company’s stock during the turbulent market conditions seen over 2022. It compares these trends to the stock’s performance during the 2008 recession.

2022 Inflation Shock

Timeline of Inflation Shock So Far:

  • 2020 – early 2021: Increase in money supply to cushion the impact of lockdowns led to high demand for goods; producers were unable to match up.
  • Early 2021: Shipping snarls and worker shortages from the coronavirus pandemic continue to hurt the supply
  • April 2021: Inflation rates cross 4% and increase rapidly
  • Early 2022: Energy and food prices spike due to the Russian invasion of Ukraine. Fed begins its rate hike process
  • June 2022: Inflation levels peak at 9% – the highest level in 40 years. S&P 500 index declines more than 20% from peak levels.
  • July – September 2022: Fed hikes interest rates aggressively – resulting in an initial recovery in the S&P 500 followed by another sharp decline
  • Since October 2022: Fed continues rate hike process; improving market sentiments help S&P500 recoup some of its losses.

In contrast, here’s how CMCSA stock and the broader market performed during the 2007/2008 crisis.

Timeline of 2007-08 Crisis

  • 10/1/2007: Approximate pre-crisis peak in S&P 500 index
  • 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
  • 3/1/2009: Approximate bottoming out of S&P 500 index
  • 12/31/2009: Initial recovery to levels before accelerated decline (around 9/1/2008)

CMCSA and S&P 500 Performance During 2007-08 Crisis

CMCSA stock declined from nearly $24 in September 2007 (pre-crisis peak) to $13 in March 2009 (as the markets bottomed out), implying CMCSA stock lost almost 50% of its pre-crisis value. It recovered post the 2008 crisis to levels of around $17 in early 2010, rising 29% between March 2009 and January 2010. The S&P 500 Index saw a decline of 51%, falling from levels of 1,540 in September 2007 to 757 in March 2009. It then rallied 48% between March 2009 and January 2010 to reach levels of 1,124.

CMCSA Fundamentals Over Recent Years

Comcast’s revenues rose from $109 billion in 2019 to $121.4 billion in 2022, as higher broadband net adds through the pandemic helped the company offset some of the other disruptions to the business, such as the impact of theme park closures. Comcast’s net income rose from around $2.87 per share in 2019 to $3.09 per share in 2021, although it declined to about $1.22 per share in 2022.

Does CMCSA Have A Sufficient Cash Cushion To Meet Its Obligations Through The Ongoing Inflation Shock?

CMCSA total debt declined from $102 billion in 2019 to $95.5 billion in 2022, while its total cash has remained roughly flat at about $5.5 billion. The company reported operating cash flows of about $26 billion in 2019 and the metric has largely ranged around these levels in recent years. While the company’s net debt is high, the company’s relatively stable cash flows reduce financial risk for the stock.

Conclusion

With the Fed’s efforts to tame runaway inflation rates helping market sentiment, we believe Comcast (CMCSA) stock has the potential for some gains once fears of a potential recession are allayed.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since 2016.

Returns Jun 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 CMCSA Return 2% 15% -42%
 S&P 500 Return 4% 13% 94%
 Trefis Multi-Strategy Portfolio 5% 15% 260%

[1] Month-to-date and year-to-date as of 6/26/2023
[2] Cumulative total returns since the end of 2016

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