Comcast's (CMCSA -0.33%) steady pace of expansion has not been enough to satisfy investors in the present bear market. Share prices of the cable communications and media giant are down 26% so far in 2022 after the second-quarter update disappointed, compared to just a 13% drop for the S&P 500 index.
This is no growth stock. Instead, Comcast is a bet on consistent earnings and dividend payments. With the stock price in retreat, is now the time to sell this market underperformer?
The broadband internet tailwind dies off
Comcast's Q2 2022 results were decent enough. Revenue was up 5% year over year and adjusted earnings per share were up 20%, both surpassing what the average stock analyst was expecting. Free cash flow, a much more volatile profitability metric from quarter to quarter, was down 34% from a year ago.
But as is always the case for Comcast, it was results from its "cable communications" segment (which accounted for 55% of total sales and over 75% of profits on an adjusted EBITDA basis) that caused the biggest stir. Specifically, broadband internet connection growth sputtered big time in the quarter. Comcast has added 775,000 net internet connections in the last year, but its total subscriber count of 32.16 million was exactly the same as where it was in Q1 2022. In other words, Comcast's lift from new household internet additions during the pandemic is now finished.
CEO Brian Roberts addressed this on the last call, and said various factors like fewer Americans moving to new homes and increased competition from wireless providers offering their network as an internet service provider-alternative have ended Comcast's run in this department. Elsewhere in the cable communications segment, video and traditional voice services fell again too, in keeping with long-term trends away from cable TV and landline telephone.
Is it time to sell?
In spite of the internet segment stalling out, Comcast's cable business overall is still quite healthy. Revenue was up 3.7% from a year ago, driven by subscription cost increases, higher business services and advertising, and wireless, which grew revenue 30% year over year in Q2.
Yes, that's right -- wireless. Comcast's virtual wireless network, which piggybacks off of Verizon Communication's network and is available to existing cable customers, went from 3.38 million subscribers at the end of June 2021 to nearly 4.62 million at the end of this June. Roberts said on the call that "only 8% penetration of our residential broadband customers" have been signed up for mobile, so there's plenty of room for more growth here.
And elsewhere in the business, the media segment led by NBCUniversal also did well, with movie studio productions and theme parks driving nearly a 20% year-over-year increase in adjusted EBITDA. And over in Europe, the Sky media segment also had a big rebound in profitability.
After the update and subsequent stock sell-off, Comcast stock trades for a meager 10 times trailing 12-month free cash flow and 10 times current year expected earnings. A lot of pessimism is priced in here, without much consideration for Comcast's ability to slowly but surely adapt its business model for the times and gradually churn out high rates of profitability. The stock currently yields 2.5% a year, a payout that has steadily risen over the last decade. And Comcast further returned another $3 billion to shareholders via stock buybacks in Q2 as well.
If you're looking for a high-growth stock, pass on Comcast. However, if you already own it, now certainly doesn't look like the right time to part ways. Comcast is cheap and business is still chugging along at a healthy pace overall and is returning ample amounts of cash to its owners. If investment income is what you want, this is a fantastic option.
