Is Comcast a Buy for 2019?

Whether you hate the company or are just indifferent, there could be worse places to invest.

Nicholas Rossolillo
Nicholas Rossolillo
Feb 23, 2019 at 12:35PM
Consumer Goods

After an epic near-500% run after the 2008 financial crisis, Comcast (NASDAQ:CMCSA) shares haven't done much for the last few years. From the start of 2017 to the time of this writing, the stock is up a modest 12% -- bouncing between slight gains and losses during that stretch.

Though Comcast shares haven't budged much, and the media giant's old cable TV and voice segments have been in steady decline, it's a rock-solid business overall, delivering consistent results. That makes it just the kind of investment conservative income-oriented investors should be looking for.

Breaking down the pieces

2018 was a good year for Comcast. For the full year, revenue rose 11% -- including some revenue in the fourth quarter from recently-acquired British TV giant Sky. Earnings, adjusted for one-time items and tax changes related to U.S. corporate tax reform, grew 26%.

Even the company's biggest segment, cable communications, turned in a solid performance. That came in spite of more customers deciding to ditch cable TV and phone packages in lieu of TV streaming and mobile phones. Cord-cutting has been a problem for legacy communications companies, but the caveat for Comcast is that TV streaming requires better internet. Comcast provides that, too (through its Xfinity subsidiary). Net customer additions on the broadband internet side paired with other offerings like advertising and business services mean that Comcast's core business is still paying the bills.

Metric

Full-Year 2018

Full-Year 2017

Change (YOY)

Cable Communications

Revenue

$55.14 billion

$53.07 billion

4%

Adjusted EBITDA

$22.45 billion

$21.07 billion

7%

NBCUniversal

Revenue

$35.76 billion

$32.84 billion

8%

Adjusted EBITDA

$8.60 billion

$8.22 billion

5%

Sky

Revenue

$19.81 billion $18.27 billion 8%

Adjusted EBITDA

$2.89 billion $2.95 billion (2%)

Data source: Comcast. YOY = year over year. EBITDA = earnings before interest, taxes, depreciation, and amortization. 

NBCUniversal also had an excellent year. The Universal Studios theme parks notched a 4% revenue gain, but the biggest boost came from the broadcast TV side. NBC hosted both the 2018 Winter Olympics and the NFL Super Bowl in February, providing gains in viewership and advertising to get the year off to a good start. Unfortunately, a lackluster year at the box office weighed down the NBCUniversal segment's profitability.

And then there was the Sky acquisition, which didn't close until October. Comcast still provided full-year results for that segment, to give investors clarity on its international growth potential. The British TV and entertainment conglomerate will give Comcast a foot in the door overseas and has good revenue momentum. Though Comcast lost to Disney in the bidding war for 21st Century Fox, the addition of Sky could still move the needle for the entertainment conglomerate in the years ahead.

A TV in the background. Someone holding a TV remote is displayed in the foreground.

Image source: Getty Images.

A media empire that can hold its own

But what about further disruption in the communications and entertainment industries? After all, streaming options like Netflix and a compelling upcoming online service from Disney are reshaping how consumers spend their time at home. Additionally, the rollout of 5G mobile networks from the likes of Verizon could create some serious competition for traditional internet service providers.

Not to worry, though, as Comcast is well prepared to weather the storm. In spite of the shifting landscape, broadcast television remains strong due in large part to sporting events. Comcast could also have some unique ideas for video streaming in the works, like an advertising-supported online service instead of paid streaming. Plus, the company has been positioning itself as an aggregator of online entertainment services, giving internet customers the option to add various streaming services through Xfinity, which in turn has made those customers more sticky and less likely to move elsewhere.

As for 5G, it's going to take many years to launch fully, so Comcast's internet and business services aren't going to be obsolete anytime soon. In the meantime, Xfinity is hard at work upgrading its capabilities, progressively increasing internet speeds for its customers and improving other aspects of its network. Thus, 5G won't necessarily disrupt traditional internet service.

Besides, many of these risks have already been priced in; the stock has been stuck in neutral for the last handful of years due to these worries. Despite solid growth last year and management's forecast that momentum will continue into 2019, Comcast shares trade at a mere 13.9 times the company's projected 2019 earnings. Add in a decent 2.2% dividend yield, and Comcast looks like a solid place to sock away some money, especially for investors looking for stable bellwether companies that can endure all sorts of challenges.

Check out the latest Comcast earnings call transcript.