To Xfinity and Beyond

One of the most surprising revelations to come out of Comcast's (NASDAQ: CMCSA  ) earnings over the last several quarters is the fact that the company is actually growing its cable business. You heard that right: the company's division that most assume is a liability is arguably Comcast's biggest strength. Ignore the rhetoric about customers "cutting the cord" and look at the facts. When you add the strength of the cable business to a growing entertainment franchise, you have a great combination of growth and cash flow.

New additions are more than offsetting "cord cutters"
Comcast has several competitors when it comes to its entertainment business. Companies like Time Warner (NYSE: TWX  ) and Walt Disney (NYSE: DIS  ) have fantastic businesses and a treasure trove of characters and properties. For all the strength of these companies, though, Comcast has an impressive entertainment business plus the pipes to deliver it all.

In fact, you could argue that Comcast's cable business is a big part of why investors should consider the stock. While it's true that the company lost 129,000 video customers , these losses were more than offset by nearly 300,000 new high-speed Internet customers and over 160,000 new voice customers.

Overall cable revenue increased 5.2%, and this business carries an operating margin of better than 40%. As you can see, this business is not only growing, but it is hugely profitable as well.

What about NBCUniversal?
When Comcast bought out the other part of NBCUniversal from General Electric, this changed the company forever. On the surface, this division seemed to have a bad quarter, but much of this was from tough comparisons versus last year. With the benefit of the Olympics last year, it makes more sense to look at the company's growth excluding the Olympics.

With a more direct comparison excluding the Olympics, NBCUniversal reported revenue growth of 3.9%. Relative to Time Warner's more than 5% increase in network revenue, and Disney's 1% increase , you can see that Comcast's division reported growth in line with its peers.

In addition, Comcast's Universal Studios reported respectable results with a more than 3% increase in revenue. This result again was in range of Disney's studio entertainment increase of 7%, and much better than Time Warner's 7% decline .

The bottom line is that while NBCUniversal's reported results didn't look that impressive, if you compare this divisions' results after adjusting for the impact of the Olympics last year then the numbers are much more favorable.

These are some big numbers
With strong results from the cable business and respectable results from NBCUniversal, it's no surprise that Comcast's cash flow and potential earnings growth is impressive.

When it comes to cash flow, Comcast generated over $11 billion in core operating cash flow (net income + depreciation) over the last nine months. While this was down about 7% compared to last year, keep in mind the comparison is a bit unfair because of the lack of the Olympics this year.

To understand how strong Comcast's cash flow is, we have to compare the payout ratios of these three entertainment conglomerates. Time Warner pays a slightly higher yield that the other two at about 1.7%, but it also carries a slightly higher core free cash flow (net income + depreciation – capital expenditures) payout ratio at 26.63%.

By comparison, Disney pays a lower yield at just over 1% and also has a lower core free cash flow payout ratio at just under 22%. Relative to these two, Comcast pays nearly the same yield as Time Warner but carries a lower payout ratio of just 22.5%.

While today's yield and payout combination from Comcast is important, what is even more impressive is analysts' expectations for earnings growth in the next few years. This is where Comcast stands out from the crowd. While Time Warner and Disney are expected to grow earnings by 12% and 14% respectively , Comcast is expected to grow much faster.

In the next few years, Comcast is expected to grow earnings annually by 19%. With huge earnings growth expected and a decent yield, shareholders should expect great things from this company. When you combine these traits with a business that throws off billions in cash flow, this stock could take them to Xfinity and beyond.

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