« Solid Quarter From CBS | Main | Great Quarter From Comcast »

April 26, 2006

Comcast Shares Finally Moving: Will Earnings Support The Move?

I remain bullish on CMCSA which reports before the open tomorrow. I think investors are slowly coming around to my thesis that financial performance over the next year or two will be quite strong and is worth paying for today. CMCSA will begin to show some aspects of subscriber and financial performance this quarter. But this will only be a prelude to accelerating growth later in 2006 as the impact of the broader rollout of the company's VOIP telephony produce begins to bite.

My only fear about tomorrow's results is that expectations have gone up a bit due to better performance for CMCSA shares in recent weeks. This has raised the bar for the stock's reaction even if the financial and subscriber results match expectations.....

For 1Q06, CMCSA is expected to report EPS of 15 cents, revenues of $5.82 billion, and consolidated EBITDA of $2.18 billion. Investors will be much more focused on the results of only the company's cable business. Expectations for key financial measures include revenues of $5.6 billion, EBITDA of $.2.17 billion, and capital expenditures of $850 million. Revenue and EBITDA growth will be near 8-9%, a prelude to growth in excess of 10% later this year and into 2007.

Almost as important as the financial figures will be subscriber counts. Analysts are looking for basic subscriber additions of around 25,000. These estimates have risen very recently as Charter, Insight, and Mediacom have each already announced better than expected results. Comcast did not dispute subscriber growth when it appeared at NCTA earlier this month. Positive basic subscriber is a reversal of recent trends and key to better sentiment on cable stocks. Cable is benefiting from bundled products, especially the addition of VOIP telephony.

Digital TV subscribers are expected to continue strong growth with a gain of close to 300,000 subscribers. High speed data subscribers are also expected to maintain their recent growth rate with the addition of 350,000 subscribers. Analysts are looking for 200,000 new VOIP Telephony subscribers offset by about 55,000 lost circuit switched telephony subscribers. Comcast will add north of 1 million telephone subs this year and even more in 2007.

While subscriber growth trends remain solid, so will trends in pricing. Despite investor fears, ARPU on the individual products will be quite stable. Overall, ARPU per customer will continue to rise, reaching $86 per month as more subscribers add additional services to their personal bundle.

Despite fears of a death mathc with the RBOCs and satellite companies, 2006 results for Comcast will look a lot like 2005 and 2004: close to double digit growth in revnues and EBITDA and high free cash flow production. As investrs growth more comfortable that double digit growth will continue through 2006 and into 2007, CMCSA shares will head into the low $30s. I think the move has started. I think tomorrow's results will help.

Posted by Steve Birenberg at April 26, 2006 04:40 PM in Comcast/Cable TV