We came across a bullish thesis on Comcast Corporation (CMCSA) on Rijnberk InvestInsights’ Substack by Daan Rijnberk. In this article we will summarize the bulls’ thesis on CMCSA. Comcast Corporation share was trading at $39.31 as of Sept 12th.
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Comcast’s recent financial performance has sparked renewed investor interest, despite an initial 5% drop in its share price following the Q2 results announcement. While the company’s results contained several positives, the market reaction reflected ongoing skepticism toward its stock. Shares have since recovered somewhat but remain down 10% year-to-date and over 8% since a deep dive in March, which highlighted the market’s unjustified discount on Comcast’s potential returns.
The Q2 results showed a mixed picture. Revenue declined by 2.7% to $29.7 billion, partly due to tough comparisons with last year’s strong performance from major film releases. However, Comcast exceeded earnings expectations by beating the EPS consensus by 9%, thanks to disciplined cost management and a lower share count. The company’s broadband business, traditionally a key driver, showed resilience with 3% growth in revenue due to a 3.6% increase in average revenue per user (ARPU), despite a decline in subscribers. Although subscriber losses are concerning, Comcast’s position as the largest broadband provider, along with ongoing investments in higher internet speeds, offers some optimism.
Comcast’s wireless segment emerged as a bright spot, with revenues up 17% year-over-year driven by robust user growth. This business has consistently grown at 20% for several years, and with only 12% of broadband subscribers currently using its wireless service, there remains significant room for further expansion. Meanwhile, the Content & Experiences segment disappointed, with a 7.5% revenue decline due to weaker theme park traffic, reflecting a pullback following strong post-pandemic growth. Despite this, the Media segment delivered a 2% revenue increase, buoyed by the strong performance of its streaming service, Peacock, which grew its revenue by 28% year-over-year.
Looking at the bottom line, Comcast’s EPS grew 7% year-over-year to $1.21, bolstered by share repurchases and stable margins. Free cash flow (FCF) was lower at $1.3 billion due to higher taxes, but the company continued to return substantial capital to shareholders, including $2.2 billion in share buybacks. With a 3.12% dividend yield and a low payout ratio, Comcast is positioned well to continue growing its dividend steadily.
Despite concerns about debt, which rose to $97 billion, Comcast’s annual FCF exceeding $15 billion suggests the current financial position is manageable. Comcast remains undervalued, trading at just over 9x this year’s earnings, and presents a compelling deep-value opportunity. With a target price of $49 by the end of 2026, the stock offers potential annual returns of 11-12%, including dividends, reflecting significant upside potential.
Comcast Corporation is also not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 61 hedge fund portfolios held CMCSA at the end of the second quarter which was 63 in the previous quarter. While we acknowledge the risk and potential of CMCSA as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CMCSA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.