Check out the latest Comcast earnings call transcript.
What happened
Shares of Comcast (CMCSA +0.95%) declined nearly 13% last month, according to data provided by S&P Global Market Intelligence, amid a broader decline in the overall market.
So what
The decline in Comcast's share price closely tracked that of the S&P 500 in December.
It's likely that the sell-off in the overall market was a key factor in Comcast's December swoon. Still, multiple investor concerns also likely weighed on the cable giant's stock.
Firstly, traditional pay-TV providers had their worst quarter ever in Q3 2018, according to telecommunications research firm MoffettNathanson, as 1.1 million homes canceled their subscriptions. This suggests cord-cutting is accelerating -- and perhaps at a faster rate than many investors expected.
Cord-cutting remains a serious threat to cable companies like Comcast. Image source: Getty Images.
Secondly, some investors fear that Comcast may have overpaid for its $39 billion acquisition of European pay-TV provider Sky -- particularly if cord-cutting begins to accelerate in Europe as it has here in the U.S.
Thirdly, fears that new 5G wireless technology could represent a significant threat to Comcast's lucrative broadband internet business also likely weighed on its shares.
Now what
Although none of these risks should be dismissed by Comcast bulls, there are reasons to believe the bears may be overestimating their potential impact on the company's profits.
For one, Comcast is gaining broadband customers faster than it's losing TV subscribers. This helped its revenue and earnings grow by nearly 5% and 10%, respectively, in the third quarter. For another, Comcast's acquisition of Sky makes the combined company the largest pay-TV provider in the world. That gives it negotiating power with content providers. Moreover, with the market now valuing Comcast at about $40 billion less than it did before the company made a bid for Sky, much of the risk relating to the merger is already priced into Comcast's shares.
Lastly, Comcast's existing infrastructure is likely to play an important role in the rollout of 5G services. So, the technology may be as much of an opportunity for the company as it is a threat.
All told, even after a 5% rise in its stock price so far in January, Comcast is now trading for less than 13 times analysts' earnings estimates for the years ahead. That's an attractive price to pay for a best-in-class business that's projected to grow its profits at more than 18% annually over the next half-decade. As such, value investors may want to consider picking up some shares today.
