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April 28, 2009

Comcast Earnings Preview: Will estimates come down again?

Comcast reports 1Q09 results before the open on Thursday. Analysts expectations are for a mid single digit increase in revenue and EBITDA with strong free cash flow performance. Headline numbers should be 23 cents in EPS on revenues of $8.76 billion.

Investors will be looking for two takeaways from the numbers and call. First, subscriber trends in 1Q are expect to improve sequentially from 4Q08. This would be the first sequential improvement in over a year. Partly, the improvement is seasonal so the most important question is whether the rest of 2009 will see similarly improved trends. Second, growth estimates for 2009 have fallen steadily and now stand at up 3-4% for revenue and EBITDA. Is there more downside to estimates or has growth reached its low ebb?

A third area of focus will be on free cash flow. Comcast is growing free cash flow well above the rate of revenue and EBITDA as capital spending is falling as a percent of revenue. The balance sheet is already strong so future plans for use free cash flow will be in focus. Will the company begin to buy back stock again? IS a higher annual dividend in the cards?

One worry is that the telcos have been aggressive and successful in rolling out triple play services and using their wireless service as a competitive weapon. This could complicate the outlook for subscriber growth and/or pressure pricing. The big fear remains that competition leads to a price war undercutting growth in free cash flow or even reigniting a capital spending cycle. How wireless fits into the strategic direction of cable companies is also a factor.

I am on the sidelines in Comcast because I fear that estimates will take another leg down. If I am wrong and estimates are stable, Comcast looks attractive as a defensive investment.

Posted by Steve Birenberg at April 28, 2009 09:32 AM in Comcast