Comcast: Still Cheap After Good Cable Growth In Q4 Results (NASDAQ:CMCSA)

Introduction

We overview our funding case on Comcast Company (NASDAQ:CMCSA), three months after our final replace in November 2022, primarily based on This autumn 2022 outcomes and CFO Jason Armstrong’s feedback at a investor convention this week.

Comcast shares have gained 9.3% (together with dividends) since our final replace, however have nonetheless misplaced 24.5% for the reason that finish of 2020 and 9.5% since we initiated our Purchase score in January 2020. The share worth is principally flat from 5 years in the past:

Comcast Share Value (Final 5 Years)

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Our revised funding case is on monitor. The core cable enterprise has continued its average EBITDA development, pushed by greater Common Income Per Consumer and value efficiencies. In NBC Common, Theme Parks and Studios are performing strongly, however Media earnings are falling as a result of rising Peacock losses and pressures on linear networks. Sky has good operational development in its connectivity companies, however has not but totally turned the nook on EBITDA. Comcast shares are at an undemanding P/E of 9.9x and a FCF Yield of seven.1%. The Dividend Yield is 3.1% and buybacks helped lowered the share depend by 7% in 2022. Our forecasts point out a complete return of 53% (16.4% annualized) by 2025 year-end. Purchase.

Comcast Purchase Case Recap

Our Comcast funding case, revised in November with considerably lowered forecasts, is based totally on the core Cable Communications (“Cable Comms”) enterprise producing average EBITDA development. For the opposite companies, we consider NBC Common’s (“NBCU”) Theme Parks and Studios are sturdy companies that may generate good EBITDA development, Sky is a mediocre enterprise that may see EBITDA get better at a gradual tempo, whereas NBCU’s Media enterprise (which incorporates Peacock) has probably the most unsure future however will see EBITDA stabilizes in 2023.

This autumn 2022 outcomes and up to date administration feedback largely help our funding case.

Comcast Headline Outcomes

Comcast’s long-term report in rising EBITDA, unbroken prior to now decade besides in 2020 by COVID-19, continued in 2022. Group EBITDA reached $36.5bn, $2.2bn (or 6%) greater than in 2019. Cable Comms was accountable for greater than 100% of this, contributing $6.1bn, whereas NBCU EBITDA fell $2.8bn and Sky EBITDA fell $0.6bn:

Comcast EBITDA by Phase (2013-22)

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The image is comparable within the newest quarter, although considerably distorted by greater severance bills. (The group incurred $638m of severance bills in This autumn, $541m greater year-on-year.) Cable Comms Adjusted EBITDA grew 1.5% as reported, or 5.8% excluding greater severance bills, whereas NBCU Adjusted EBITDA fell 36.3% (22.1% excluding Headquarters & Different severance) and Sky EBITDA fell 26.7% (2.0% excluding greater severance):

Comcast Revenues and EBITDA by Phase (Q4 2022 vs. Prior Years)

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Developments in every of Comcast’s companies are in keeping with our funding case, as mentioned beneath.

Cable: Average Underlying EBITDA Development

In This autumn 2022, Cable Comms EBITDA grew 1.4% as reported, however by 5.8% excluding greater severance bills:

Comcast Cable Comms Revenues and EBITDA (Q4 2022 vs. Prior Intervals)

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Broadband revenues grew 5.4% year-on-year, on subscriber development of 0.8% and Common Income Per Consumer (“ARPU”) development of three.8% (adjusted for sure COVID-related credit within the prior 12 months). Broadband revenues additionally grew 0.7% from Q3. Administration is prioritizing ARPU over quantity, and Broadband web provides have continued to say no in latest quarters, from zero in Q2 2022, to +14k in Q3 and -26k in This autumn (impacted by Hurricane Ian, in any other case +4k):

Comcast Cable Buyer Internet Provides by Class (Since Q3 2019)

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This identical method will proceed in 2023, as CFO Mike Cavanagh stated on the This autumn earnings name:

“We anticipate ARPU development will proceed to be the first driver of our residential broadband income development in 2023”

On the identical name, Cable Comms CEO Dave Watson described 2023 as a “difficult setting” so as to add broadband subscribers. Extra not too long ago, at a Deutsche Financial institution convention on February 27, CFO Jason Armstrong signifies that broadband web provides will possible be destructive in Q1 2023, as some sell-side analysts already forecasted.

Longer-term, much like what we have now mentioned in our latest overview of Constitution Communications (CHTR), Comcast broadband web provides can enhance with market gross provides normalizing, rival Mounted Wi-fi merchandise turning into much less enticing as a result of greater velocity calls for or restricted spectrum capability, and/or Comcast’s greater passings development translating into greater gross provides. Administration consider Comcast can probably add 1m passings in 2023 (to a 2022 year-end base of 61.4m), in comparison with round 0.8m in every of 2021 and 2022.

Video revenues fell 5.6%, with an 11.2% decline in Video subscribers being offset by a 5.8% improve in APRU (primarily as a result of worth will increase in the beginning of 2022), and was offset by Programming Prices falling by 5.8%.

Voice revenues fell 13.2% as a result of buyer losses.

Wi-fi revenues grew 24.5% year-on-year and 11.9% from Q3, as Comcast continues to quickly acquire prospects. The variety of Wi-fi traces grew 33.5% year-on-year to five.3m, together with web add of 365k throughout This autumn.

Promoting revenues grew 9.1%, pushed by political adverts associated to the U.S. mid-term elections; excluding this and the relocation of revenues to the brand new Xumo three way partnership with Constitution, promoting income fell 1.6%.

Whole Prices & Bills solely grew 1.5% year-on-year as reported, regardless of elevated inflation, and fell by 1.9% excluding $305m of upper severance bills.

Administration has explicitly expressed confidence in reaching EBITDA development even with little or destructive broadband web provides on a number of events, largely not too long ago with Jason Armstrong saying on February 27:

“We now have loads of development runners between broadband fee, enterprise companies and wi-fi that, general, within the connectivity bucket, we’re comfy with our capability to develop income and cozy with our capability to develop margins”

We proceed to anticipate average EBITDA development in Cable Comms.

NBCU: Robust Parks & Studios, Weak Media

In NBC Common, Theme Parks and Studios have carried out strongly, however Media earnings are falling as a result of rising Peacock losses and pressures on linear networks.

In This autumn 2022, Theme Parks EBITDA grew by 16.0% year-on-year and Studios EBITDA rebounded 214%, however Media EBITDA has collapsed by greater than 80% to simply $132m:

NBCU Revenues & EBITDA by Phase (Q4 2022 vs. Prior Years)

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Theme Parks EBITDA was helped by persevering with sturdy demand in each the U.S. and Japan, although the park in Beijing was affected by COVID disruptions throughout This autumn 2022. Client spending in NBCU’s U.S. parks has remained sturdy, a minimum of for now, as CFO Jason Armstrong commented on February 27:

“And as you look in direction of 2023, off to a extremely good begin at this level, the place home displaying no indicators of a client slowdown in our parks proper now I believe we’re all ready for the cellphone name if that is taking place, nevertheless it hasn’t occurred but”

The Theme Parks enterprise has continued to develop. Comcast is at the moment constructing the brand new Epic Universe extension to its Orlando park, and has introduced new websites at Dallas and Las Vegas.

Studios EBITDA was boosted by power in each licensing and theatrical income, the latter helped by profitable latest releases. Studios was #2 in worldwide field workplace for the total 12 months.

Media’s EBITDA collapse was primarily as a result of greater losses at Peacock, Comcast’s streaming service, from the prices of including new content material. Nevertheless, excluding Peacock, Media EBITDA nonetheless fell 13% year-on-year in This autumn (regardless of revenues from Telemundo broadcasting the World Cup), as headwinds from subscribers lowering or abandoning linear networks continued.

Peacock ended 2022 with 20m paying subscribers, greater than doubled throughout the 12 months, together with 5m gained in This autumn. Nevertheless, losses have continued to climb, reaching $2.5bn in whole in 2022 and have been guided to achieve $3bn in 2023. Administration expects Peacock losses to peak in 2023 and fall after.

Media Revenues & EBITDA – Peacock vs. Non-Peacock (Since 2020) NB. Q3 2021 and Q1 2022 revenues have been boosted by Olympics video games (in Tokyo and Beijing respectively).

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Peacock is taking some steps to enhance its profitability. Armstrong acknowledged on the convention that the service has not too long ago stopped taking new sign-ups for its free tier, and described an intent to maneuver free subscribers over to the paid AVOD (Promoting-Primarily based Video on Demand) tier over time.

We’re unsure about Peacock. Whereas we have now noticed administration modifications and new value cuts throughout pureplay media gamers equivalent to Disney (DIS), long-term sector profitability might require all rival streaming companies to grow to be extra rational on prices, together with these owned by Apple (AAPL) and Amazon (AMZN).

Along with the upper Peacock losses, administration additionally anticipated to see a weak EBITDA in the remainder of Media, as it will “proceed to be impacted by the highest line pressures at our linear networks”.

Sky: Not But Turning the Nook

Sky’s revenues have been down 0.8% year-on-year whereas EBITDA was down 15.1% (2.0% excluding greater severance bills) in This autumn 2022:

Sky Revenues, EBITDA & Clients (Q4 2022 vs. Prior 12 months)

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Direct-To-Client revenues have been flattish (up 0.2%) in native currencies, with buyer positive factors within the U.Ok. being offset by losses in Italy and Germany. Sky now has 6.5m+ broadband prospects and 3m cell traces within the U.Ok. Content material revenues additionally grew. Nevertheless, these was offset by a decline in Promoting revenues (as a result of weak macro).

Sports activities prices have been decrease in This autumn as some soccer matches have been shifted out of the quarter by the World Cup, however are anticipated to be greater in H1 2023 as a result of an prolonged season and the aforementioned shifted video games.

Sky has proven some EBITDA restoration on an annual foundation, albeit offset by the strengthened greenback:

Sky Revenues, EBITDA & Clients (2022 vs. Prior Years)

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We proceed to anticipate a gradual restoration in Sky’s EBITDA, albeit with near-term headwinds in H1 2023.

Comcast Valuation

At $34.50, relative to 2022 financials, Comcast has a 9.9x P/E and a 7.1% Free Money Circulation (“FCF”) Yield:

Comcast Earnings, Cashflows & Valuation (2019–22)

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2022 FCF was $4.4bn decrease, regardless of a better EBITDA, largely as a result of greater money taxes ($2.6bn), greater CapEx ($1.5bn) and better working capital ($2.6bn), the final merchandise as a result of a unbroken restoration in content material manufacturing from the disruption by COVID-19. Administration expects working capital to average, however we anticipate CapEx to remain elevated as a result of persevering with spend on Cable Comms upgrades and Theme Parks.

Comcast pays a dividend of $1.16 (which was raised 7.4% with This autumn outcomes), representing a Dividend Yield of three.1%.

Comcast repurchased $13.0bn value of its shares in 2022, together with $3.5bn in This autumn. Buybacks helped lowered the share depend by 7% in 2022.

Internet Debt / EBITDA was 2.4x, in keeping with administration goal.

Comcast Inventory Forecasts

We maintain the assumptions in our forecasts unchanged, aside from the 2022 share depend.

Our new 2025 FCF/Share forecast is $4.01, 1% decrease than earlier than ($4.06):

Illustrative Comcast Return Forecasts

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With shares at $37.23, we anticipate an exit worth of $54 and a complete return of 53% (16.4% annualized) by 2025 year-end.

Is Comcast Inventory A Purchase? Conclusion

We reiterate our Purchase score on Comcast inventory.