Intro:
Comcast is huge. You know that. We know that. But that's not why we're writing about them. That's not what you come here to learn more about. Why we are writing about them is because they're making a big bet on the future of space and their role in it.
Investing in space is a huge theme for us here at Moby and is something we're going to be making more investments in going forward. Over the next few weeks we'll be releasing the stocks we love in the sector and our overall view on it! We realize space, as an investment, covers a huge landscape and we're here to break it down sub-sector by sub-sector (coming soon 😉) to better help you understand the companies playing it and how they'll shape the future of the world! Comcast is one of the first we'll cover as part of this theme, and we're extremely excited to share their new updates with you. Please read on below to get the overview of the company and where we believe their investment in space will project the stock to go!
Target Price: $70 (20% upside from its current price of $58)
Target Date: 10-12 Months
Ticker: CMCSA
Rating: Overweight
Before we dive into the space specific themes, let's first discuss why Comcast is even doing well in the first place. If you want to jump to the space specific investments, please skip to the section labeled, "Space Investments".
Overview:
The company has a portfolio that extends to several key segments, with quite a few major brands under its umbrella. Comcast classifies its business into 3 major areas, covering 6 business segments:
- Cable Communications: includes Comcast Cable, the leading provider of high-speed internet, video, voice, wireless, security and automation services in the US.
- NBCUniversal: includes 4 reportable segments: Cable Networks (providing entertainment, news and sports at national and regional levels), Broadcast Television (mainly Telemundo and NBC), Filmed Entertainment (Universal Pictures, Illumination, DreamWorks Animation and Focus Features) and Theme Parks (mainly Universal theme parks)
- Sky: Europe’s leading entertainment company, that holds the broadcast rights of English Premier League and Italian Serie A). This specifically is what is getting us so excited about their future. More on this below.
Like other telecom and media companies, the Comcast stock (CMCSA) has been enjoying a strong run since the Mid-March 2020 market collapse. In fact, the stock price has climbed by 76% in the last 15 months!
Comcast: Company Fundamentals and Stock Performance
There's a lot to like about the Comcast legacy business, even before factoring in the exciting investments they're making in Space. Let's break down the most exciting parts of the business here:
- All of their business segments (except theme parks) earned greater revenues individually in Q1 2021 than in Q1 2020. While their revenue has grown only marginally at 2.2% year over year, we feel that the company will improve these figures going forward (thanks to their plans to increase the user base through their Peacock OTT platform, as well as increasing 5G user-base of Xfinity.) Moreover, the 3-year flat-fee extension of the broadcasting rights for the English Premier League given to Sky will also aid sustained growth.
- The total debt-to-equity ratio of the company stands at a very healthy 1.96. In other words, for every $1.96 of debt (short or long-term), it has $1 in equity funds available. Such a debt-to-equity figure indicates that the company’s funding requirements are met quite conservatively (since a higher ratio would also increase bankruptcy risk) while still using debt to leverage the equity returns.
- The company’s PEG ratio reads 1.09 at the moment. For those who are new to our recommendations, the PEG ratio is an improvement upon the classic P/E ratio and considers growth expectations to trace how rationally is the stock valued. While a number below 1 is theoretically undervalued, the company’s PEG is still quite low, which implies a good upside potential.
- For our readers asking for some technical analysis: Look no further than their recent moving averages and beta value. For CMCSA, the 50-day MA is pegged at $56.87, while the 200-day MA is $54.35. The current price is ~$58. In essence, the Moving Averages indicate an upward trend in the stock prices, which makes the near-term future trend of the stock quite optimistic. Moreover, the Beta (the measure of volatility) of CMCSA is currently 1.04. A number close to 1 can be considered to be as volatile as the benchmark index (and therefore the overall market). The stock, therefore, has shown average risk and is, therefore, a good fit for any portfolio.
- The recent news of Comcast’s own OTT platform Peacock collaborating with Amazon for its launch on FireTV, and the Universal film deal between the two giants, point at the aggression with which the company is trying to penetrate the red-hot OTT market. The fact that Comcast already owns the rights for Universal films, among others, is bound to give Peacock a clear edge.
So now that we've established that CMCSA is making strides in the right direction in their core business, let's chat through what they're doing in space that is so exciting.
Space Investments:
- Acquisition of Sky Media: Sky is the UK's largest pay-TV broadcaster with 12.7 million customers as of end of 2019 and its digital satellite TV platform was was the UK's most popular digital TV service up until recently. The synergies here with the rest of their business is clear. CMCSA can use Sky to launch Peacock international. By having so many satellites space capabilities via their satellite tv platform, CMCSA can leverage their infrastructure to enhance their offering up and above their competition.
- Satellite Communications: The largest telecommunications companies in the world have satellites as a part of their broadcast distribution networks and count CMCSA as one of the big players. Why is this important? As an increasing number of other satellite companies are looking to offer IoT capabilities, communication services, and other products, they have to either spend an insane amount of money to launch this themselves or their forced to use the already existing infrastructure. This is especially what makes Comcast such an exciting play. With so many companies really looking to "get in space" CMCSA has a fleet of infrastructure that they're sitting on that can be monetized beyond their wildest dreams. The macro tailwinds are clear and they're in a huge position to catapult themselves forward using all of the satellites they've already built and deployed!
Takeaway:
These two advancements are not to be ignored. As CMCSA starts ramping up both Sky and their satellite programs for new monetization methods, the TAM here is huge! We think this can be the next new massive opportunity CMCSA has been looking for and the acquisition of Sky makes more and more sense every day.
Conclusion:
Comcast seems to find itself in a sector that has seen a major tug-of-war between the established players. However, we believe that this presents us with a great opportunity to invest. This is because it allows us to not only park excess capital in a company that is a major player, but it also allows us to make a strategic investment in a company that is playing into one of our major thematic views (the expansion of the space market).We therefore are initiating an overweight rating and love this as a multi-year hold!