I went to Comcast's (CMCSA 3.20%) new Epic Universe theme park this past weekend. It's a glorious celebration of next-gen ride technology, at least for the three flagship rides. There's a jaw-dropping eye for detail everywhere else. Through three days of previews, I got a taste of what will make the highly anticipated destination a major addition to the Central Florida tourism landscape. I also saw the flaws that will hopefully be addressed before the park officially opens to a wider audience.
A couple of days before heading out to the new park, I added to a position in Comcast that I initiated earlier this year. I also increased my stake in long-term holding Walt Disney (DIS 0.59%), the one company that some may argue has the most to lose with the arrival of Epic Universe. I disagree. Let's dive into why I think both Comcast and Disney are compelling buys now.
NASDAQ: CMCSA
Key Data Points
1. The stocks are historically cheap
Investors have migrated away from most media stocks on this side of the pandemic. Go back one, three, or five years, and both Disney and Comcast are currently trading lower than they did at any of those starting lines. It's not fair. The businesses have grown in that time. Revenue at Disney and Comcast is 31% and 13% higher respectively than it was in fiscal 2019. Operating profits have also inched higher.
Content has always been king. The royalty has been kicked up a notch in the new normal. It doesn't hurt that streaming services that were losing gobs of money heading into the COVID-19 crisis have finally started to turn profitable. The end result is that Disney and Comcast are healthier businesses now, even if the stock tickers aren't playing along.
Comcast is trading for less than 8 times this year's projected earnings, and just 7 times next year's target. Disney is trading at higher income multiples -- 17 for the current fiscal year that ends in five months and 15 for fiscal 2026 -- but both companies are trading at the low end of their valuation ranges over the past decade.
Image source: Getty Images.
2. Cash cows are fueling growth initiatives
You can pick up shares of Comcast at a single-digit earnings multiple because its largest segment -- connectivity -- is in a seemingly perpetual state of decline. Cord-cutters have been gnawing away at its cable TV subscriber base for years. However, now Comcast is also seeing its broadband business start to backpedal. Cable TV and internet access account for more than two-thirds of its revenue.
Those segments may be sliding, but they are generating a lot of cash flow for Comcast even on the gradual fade-out. It's using a chunk of those proceeds to repurchase shares and serve up a generous dividend that is approaching a 4% yield. It's also using its largest businesses to make bigger investments in its content, theme parks, and wireless operations where the growth prospects are more robust.
Disney is doing the same thing with its legacy linear networks. It's suffering similar cord-cutting pains, but there's still money being made that it can deploy elsewhere. Now that its streaming business turned profitable a year ago, it has even more dough to boost its theme parks and content creation like Comcast is doing.
3. There doesn't have to be a theme park loser in this arms race
The lazy narrative is that Epic Universe is a Disney killer, but that's far from the truth. When Comcast gave Universal Studios Florida an adjacent sister park in Universal Islands of Adventure back in 1999 it didn't stun growth at Disney World a couple of I-4 exits away. It only ramped up the number of tourists coming to visit the area.
It took Disney roughly two decades to finally surpass the new ride wow factor of Islands of Adventure's The Amazing Adventures of Spider-Man attraction, but it didn't see its turnstile clicks contract during the lull. When Disney World finally raised the bar with the arrival of Avatar Flight of Passage, Star Wars: Rise of the Resistance, and Guardians of the Galaxy: Cosmic Rewind between 2017 and 2022 it's not as if folks stopped flocking to Universal Orlando.
If Monsters Unchained and Harry Potter and the Ministry of Magic hand the oneupmanship crown back to Comcast -- and they are incredible experiences if you can score the chance to experience the latter -- it's more an opportunity than a problem for Disney. Unless things radically improve in the final three weeks of technical rehearsals, Epic Universe is going to have a problem balancing capacity constraints with guest satisfaction. Wait times for some popular attractions and even food offerings are lengthy this week with Epic Universe entertaining water park-sized crowds in the thousands. What happens come May 22 when the crowds will be in the tens of thousands?
Demand outstripping supply isn't a bad thing. Comcast has three other gated attractions a couple of miles away to take on the overflow of visitors. Disney World and smaller area parks will also cash in by absorbing the surge in visitors to Orlando this summer. I believe in the theme park space and the competitive spirit that got us to where we are today. I was more than happy to invest in both companies last week.
