Comcast continued its long string of good quarterly earnings reports with the highlight being the best cable TV subscriber growth in nine years.  Yes, for all the worry about cord cutting, Comcast added subscribers in 2015.  And growth in broadband subscribers, where Comcast and the cable industry maintain dominance with the fastest network continued unabated.

Comcast grew revenues and EBITDA in mid to upper single digits and free cash flow in the double digits in 2015.  We see similar growth in 2016 as the company has invested wisely in its network and TV business.  Fastest internet speeds remains a strong draw for cable and enables moderate prices increases for broadband.   Comcast’s X1 box is now being very widely deployed and the software interface is best in class.  Comcast has also invested heavily in program rights allowing subscribers to access full currents seasons of almost all major TV shows.  Additionally, Comcast’s apps enable easy viewing in any location or any mobile device of live, on demand, or recorded programming.

The cable industry, led by Comcast, is in pretty good shape despite all the concerns about Netflix and cord cutting.  Satellite companies do not offer broadband technology and while AT&T purchased DirecTV, so far subscriber gains are just being passed around among the two companies.  Cable also benefits from being a domestic only industry when most of issues plaguing Wall Street emanate form overseas.

Comcast does own some cable networks in its NBC Universal division.  These networks comprise only about 15% of total operating cash flow, however.  The rest of NBCU is made up high performing theme parks, the most successful film studio in 2015, and the NBC Television Network which is staging a nice turnaround.

Backing out NBCU at a depressed multiple of 8X its cash flow leaves the cable business that dominates Comcast trading for 6.5X operating cash flow.  This is way too cheap for a business growing steadily in the mid upper to upper single digits and throwing off enormous free cash flow.  Comcast has used its cash flow wisely leaving it with a very strong balance sheet, another positive when global markets are nervous.  We see Comcast trading up the mid-$60s, 20% of recent prices, as investors grow to appreciate its attributes.

CMCSK is widely held by clients of Northlake Capital Management, LLC, including in Steve Birenberg’s personal accounts.  Steve is sole proprietor of Northlake, a registered investment advisor.  Northlake’s regulatory filings can be found at www.sec.gov.  CMCSK is a net long position in the Entermedia Funds.  Steve is portfolio manager and managing partner of Entermedia, long/short equity hedge funds focused on media, entertainment, leisure, communications, and related technologies.