Strong Results for Comcast's Third Quarter
We don't expect to change our $60 fair value estimate and view Comcast shares as fairly valued currently.
Comcast (CMCSA) delivered another quarter of strong results within the cable business, as its network position, central to our wide moat rating, nicely differentiates the firm versus phone rivals in most markets. The Olympics also drove strong growth at NBC Universal, though the underlying trends in this business remain largely unchanged. We don’t expect to change our $60 fair value estimate, and we view Comcast shares as fairly valued currently.
Television customer growth was again solid during the quarter, with net additions of 32,000 marking the first third-quarter gain in a decade. This growth stands in contrast to AT&T/Directv, which has lost about 158,000 net customers over the past year, roughly equal to Comcast’s net additions. While we still expect new entrants to the television market will challenge Comcast’s ability to grow in the coming years, we believe it has a fundamentally stronger position than AT&T, its largest rival. Comcast’s network will help it retain customers generally, in our view, and we also find its strategy around X1 superior to AT&T’s effort to bundle wireless and television services.
Internet access customer growth also remains solid, with 330,000 net additions during the quarter, up slightly versus a year ago. Total cable revenue increased 6.9% year over year, slightly faster than recent experience, thanks in large part to increased political advertising. Cable profitability continues to slide modestly, with the segment EBITDA margin declining nearly 1 percentage point versus a year ago to 39.7%. A step-up in content costs was the biggest reason for the decline, though Comcast also continues to invest in X1 and other service enhancements. We expect content cost growth will slow in the coming years, but we also expect Comcast will increasingly struggle to pass these increases on to customers.
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Michael Hodel does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.