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April 30, 2007

Comcast: Buy on Weakness

Comcast (CMCSA/CMCSK) reported solid first-quarter earnings of 26 cents per share on revenue of $7.39 billion. These numbers were extremely close to consensus estimates and all financial and subscriber metrics. The figures did not provide the upside to consensus estimates that I and others were expecting, however, following very bullish comments from CEO Brian Roberts at several Wall Street conferences over the past couple of months.

The results reinforce my positive view of Comcast shares and my belief that they will trade at significant new highs during 2007 but are likely to be met by selling initially due to the lack of upside in the numbers. I am very close to adding Comcast to Northlake client accounts and will limkely pull the trigger if siginficant weakness occurs....

In the cable segment, Comcast reported 12% revenue growth and 14% earnings before interest, tax, depreciation and amortization (EBITDA) growth, exactly on target with the company's full-year guidance. Analyst estimates were at or very, very slightly above the reported figures. Subscriber metrics met or exceeded guidance except in telephony. Basic subscriber gains matched expectations, while digital TV and high-speed data exceeded estimates. VoIP Telephony adds of 571,000 trailed expectations of a little over 600,000 and will be a point of contention. Average revenue per user was very solid across all products.

Management maintained guidance across the board, including revenue and EBITDA growth, subscriber additions and capital spending. I had hoped for an increase in guidance, but I still think that is in the cards as the company matched full-year growth targets in the first quarter and Roberts is quoted in the press release as saying that the year is off to a great start with "increasing momentum." I'd interpret that as meaning above first-quarter growth rates, which means above current guidance.

Finally, I'd note that capital spending matched expectations, up about $500 million vs. a year ago; $300 million of the increase is related to customer premise equipment like telephone and data modems, DVRs and digital set-top boxes. In other words, the growing spending is directly related to a growing subscriber base for all products. If the return on this investment is satisfactory, then Comcast should be spend the money. It takes investment to grow sometimes. I think Comcast is making the right choice.

Posted by Steve Birenberg at April 30, 2007 09:08 AM in Comcast/Cable TV