Why Comcast Deserves a Closer Look

You might think of Comcast (CMCSA 1.85%) as a sleepy cable conglomerate, but the company generated nearly $18 billion in free cash flow (FCF) last year, and trades at just 12 times FCF.

In this episode of "Beat and Raise," recorded on Jan. 28, Fool contributors Toby Bordelon and Brian Withers discuss Comcast's latest quarter and how the company compares to Walt Disney (DIS -0.04%).

Brian Withers: I'm excited to hear about Comcast.

Toby Bordelon: Are you really?

Withers: Yeah. I was looking at them and it didn't make the connection that they own NBC. I knew that. But NBCUniversal, so they own theme parks?

Bordelon: Yes, they do. They own theme parks.

Withers: This is a highly diversified business.

Bordelon: It is. I'm going to put this the slide up here, so you can take a look what we're talking here. Comcast owns, let's see, theme parks, Universal Studios; a network television station, NBC; a movie studio, Universal Studios; and a streaming service, Peacock. What does that look like to you Brian? That sounds a lot like another company we all know and love, Disney.

Withers: Yeah.

Bordelon: The difference being Comcast also owns, and maybe this is a negative, cable company which provides you with broadband internet access and traditional cable. Also, they've just recently got into cellphones, too. That's the business I think we might be less excited about and almost makes you wonder. You can see the synergies there. They could split off a big chunk of the business and have a straight-up business competitor, although you will note my concern at the bottom there, Peacock is no Disney+. You could say that about the entirety of Comcast business I think. Universal Studios is great. They do have some compelling properties there. But stuff like Harry Potter, that's a licensing deal. They don't own that.

Withers: They got the Olympics.

Bordelon: Well, they do. They do, but is that really a profit-maker? Something to consider as we're moving into winter Olympics time. Given the amount of money they pay for those rights. Then you look at something like Universal, what does Universal Studios have? The theoretical Universal Monster-verse they trying to get off the ground. They have Fast and Furious, too, that's a solid property. But point being, you can compare them very favorably to Disney in terms of what that business looks like. But in each category you almost want to say they are the second. Best case scenario, No. 2 player there. It's like Pepsi to Disney's Coke.

Withers: Yeah, hence why the market cap is like 2% of Disney's (joking).

Bordelon: Yeah, $4.6 billion. But then you have a lot going on and you know what, this was a good quarter for them. They beat on revenue. For the year, they beat on revenue. They beat on earnings. You see that dividend, Brian, 8% increase for next year, 14th consecutive year. They've increased their dividend. That is solid now that in part comes from the old-school cable business. That steady cash-generating business. But 14 consecutive years of dividend increases nothing to sneeze at. $17.1 billion in free cash flow for the year, that is a record. Again, very solid. This business generates cash for sure.

In other good news the theme parks are recovering. They talked a little bit about that. International attendance remains constrained, they say. They are seeing very strong demand in the U.S. and with their theme park business. This last fourth quarter was the most profitable fourth quarter on record. That is impressive. That is impressive. They opened up Universal Beijing this past September. They're starting to continue their international expansion there. But that's solid revenue. You see that $116 billion in revenue for the full year, that is a lot for the quarter, up 9.5%, $30 billion. You see same thing with earnings per share. Earnings per share was up 33% for the quarter. They actually lost a little bit in earnings per share. They had some increased costs that are accounting for that. But what you're seeing there when you look at the quarterly growth lower than the overall year growth you're seeing by the time you get Q4, Q4 2020 was starting their recovery. That's a tougher comp than say Q2 2020, where nothing was going on in terms of theme parks.

A lot to like. 24.5 million monthly active accounts for Peacock. They don't say subscribers because a lot of it will get them for free, and there's a free tier, unlike Disney+. 24.5 million active accounts. They did return $8.5 billion to shareholders. That dividend that you saw that great dividend, they had $4.5 billion in dividends last year, $4 billion in share repurchases. They keep giving money back as a they keep generating cash. The market doesn't like it, at least in the last half year, so they've got some issues there. I think the cable business is weighing on them in the television business. I'm not sure how much they said they had 1.1 million net new additions in the wireless business. I don't know how big a growth point that's going to be going forward for them. Probably that in part and the fact that as we talked about at the beginning, you can't look at this business and not naturally compare it to Disney. That just comes up. Then you start making those comparisons. Do I want to own Universal Dracula and werewolves?

Withers: Or do I want to own Star Wars.

Bordelon: Yeah. Do I want to own Star Wars and Marvel? There you go, you can make the theme parks the same way where Universal, which is great. But would you rather own Millennium Falcon? You start making those comparisons there. 24.5 million Peacock accounts -- great. Disney Plus has over 100 million paying subscribers. Whenever you make those comparisons, people are just going to say, it's good, but it's not great. That's what they struggle with. I think they struggle with some, and then in terms of brand, Comcast, when you hear Comcast, oh the cable company that I hate. They've got some brand issues to work through. But this is a true massive conglomerate and part of me wonders how long they should remain so. They have a lot of solid entertainment assets. As you almost want that part of the business and not the cable and internet part of the business.

Withers: Which is just getting hammered from all sides.

Bordelon: Yeah.

Withers: Between YouTube in the streaming channels and whatnot, cord-cutters.

Bordelon: You have cord-cutting going on. Plus you have the content owners continually trying to raise prices. They get into the high-profile fights all the time with, how much are we going to have to pay Disney to carry ESPN or how much do we have to pay Discovery to kinda? That's not great. 

Withers: Call your cable provider, you won't get the game this weekend. [laughs] What?

Bordelon: Yeah. They never really win those fights in the arena of public opinion and it's really hard to. I would say good business or decent business, that's got a lot going for them. But if you make a list of like your top 20 companies you want to invest in, I don't know that this.

Withers: Yeah, even with the dividend, there's better dividend companies.

Bordelon: There are. But I mean, hey, if you like dividends. It's worth considering and looking at. It's been solid. They keep raising it so you can't knock them for that.