You probably associate the cable industry more with heinous customer service than with innovation, but change is in the wind in the U.S. cable market. And two of its largest players, Comcast (NASDAQ:CMCSA) (NASDAQ: CMCSK) and Charter Communications (NASDAQ:CHTR) each have an opportunity to profit from the coming shifts.

Success is far from certain, though, so let's review which company's shares appear more attractive at their current levels. We'll run Comcast and Charter Communications stocks through a three-part analysis to determine which is the better buy today.

Financial fortitude

The cable business involves ample amounts of leverage, though not without good reason. Here's a brief synopsis of some of the most important measures of liquidity and solvency.

CompanyCash and InvestmentsDebtCash From OperationsCurrent Ratio
Comcast $3.3 billion $61.1 billion $19.2 billion 0.76
Charter Communications  $1.5 billion $61.7 billion $8.0 billion 0.34

Data sources: Comcast and Charter Communications investor relations, Thompson Reuters, and Yahoo! Finance. 

The first figures to jump out are Comcast's and Charter's substantial debt levels. But the cable business is a massive fixed-asset business, and Comcast and Charter ended 2016 with $180 billion and $148 billion in assets on their balance sheets, respectively, so that might quiet the alarm bells. It's also worth noting that the majority of both companies' debt burdens come due in 2022 or later and can easily be refinanced or extended at the companies' discretion.

Neither company does well in terms of cash on hand and near-term liquidity, but that's also probably by design. So the one true differentiator between the two is Comcast's outsized operational cash flow-generation capabilities. For that reason, Comcast earns a win in the first section of our analysis.

Winner: Comcast.

A telecom worker examining a base station

Image source: Getty Images.

Durable competitive advantages

As the two largest cable companies in the U.S. today, Comcast and Charter Communications enjoy a myriad of competitive advantages. Charter, with its 26.2 million consumer and enterprise subscribers, is now nearly as large as large as Comcast, which claimed 28.6 million customers in its most recent 10-K filing.

Both companies have largely the same business model, providing cable, internet, and landline telephone services. The one key differentiator -- and advantage -- is that Comcast owns content-production assets in the form of NBCUniversal. This important distinction, coupled with some of its stated 2017 plans, makes Comcast the better positioned of the two companies to thrive in a rapidly evolving cable market.

Comcast plans to launch its own mobile-phone service this year, using spectrum it will rent from other 4G operators. Charter has its own mobile virtual network operator license in place with Verizon, though it plans to start its own network in 2018. 

Launching their own mobile services will allow Comcast and Charter to stream their cable services over their wireless networks and to users' mobile devices. AT&T is buying Time Warner for the same reason. The advent of 5G standards will allow for in-home streaming quality via mobile networks, and the companies that provide mobile services figure to be the leaders in this space.

Comcast's control of NBCUniversal -- which owns core cable networks including CNBC, MSNBC, Bravo, and USA, among much more -- will ensure it can secure broadcast rights for this new "mobile bundle." It's likely that Charter will be able to secure content rights as well, but Comcast's ownership of so much programing minimizes the chance that something could derail its efforts to bring cable to mobile in the years to come.

Winner: Comcast.


Take a look at three of the most popular valuation metrics for Comcast and Charter.

CompanyP/E Forward P/EEV/EBITDA
Comcast 20.9  17.3 8.8
Charter Communications  20.5  64.0 13.7

Data sources: Thompson Reuters and Yahoo! Finance. 

Comcast looks cheaper than Charter Communications, but bear in mind that Charter is in the midst of digesting the former Time Warner Cable and Bright House Networks -- not to be confused with Time Warner, which AT&T is in the midst of acquiring.

Analysts estimate that Time Warner Cable will generate normalized EPS of $5.04 in 2017, far lower than the $15.95 it produced in diluted EPS in 2016. The company doesn't provide forward guidance as part of its earnings releases, so it isn't clear whether its continued integration of its acquisitions or some other factor is to blame for this difference. The company, however, did note in its most recent filing, "Since the close of our transactions in May, we have been managing the complicated process of integrating three different companies with over 26 million customers and 90 thousand employees."

At any rate, Comcast enjoys a better competitive position, so it seems fair to award it another win in this category.

Winner: Comcast.

And the winner is... Comcast

Charter does have plenty going for it, and I like its move into the mobile space as well, even if it's a bit late getting there. However, Comcast earns a clean sweep in our analysis, as its stronger competitive position makes it the better stock to own today.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.