What to Make of Comcast Stock in the Age of Cord Cutting

At least once a month, I get a “special offer” from Comcast in my mailbox begging me to come back. Get these 250 channels, high-speed internet AND a phone line for the next two years at the low, low price of $99.99 (plus taxes and fees, of course). And I always do the same thing: rip it up and toss it in the recycling bin. It’s a metaphor for what investors have done with Comcast stock in recent years.

Comcast vs. Comcast Stock

No, Comcast (CMCSA) isn’t dead. Far from it, in fact. Last year, the company reported a record $94.5 billion in sales, an 11% improvement from 2017 and more than double its revenues at the start of this decade. And Comcast stock hasn’t gone the way of Sears (SHLD) or even General Electric (GE); it’s still quite viable, up 23% year to date.

But shares of all the streaming companies that are making the cable and digital television model as out of date as a BlackBerry are much better investments. In the last five years, Netflix (NFLX) has outperformed CMCSA by almost 10-to-1, advancing 608% to Comcast stock’s 69%.

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During that time, Amazon (AMZN) (which has benefited greatly from its Amazon Video streaming service) is up 495%. And now Disney (DIS) and Apple (AAPL) are getting in the streaming game, which could accelerate the rate of cord cutting at a time when Comcast’s pay-TV customer count has slipped for eight straight quarters.

Granted, the flight from high-paying, bundled cable and digital TV service to cheaper, a la carte streaming services such as Netflix and Amazon Prime hasn’t quite been the mass exodus it’s often made out to be. Comcast is down exactly 2 million pay-TV customers from its early-2016 peak, falling from 24 million customers to 22 million. And the company has done an admirable job offsetting those losses via higher distribution, advertising and licensing fees.

Plus, the company is well diversified; its broadband internet business is still thriving—people still need an internet connection to watch all those streaming services. It still owns NBCUniversal, which next year will launch its own streaming service available for free to its pay-TV subscribers (including to people who subscribe to rival cable providers AT&T, Charter, Cox and Dish) and for $12 a month as a standalone. NBCUniversal also has its own film studio and theme parks, which did a combined $3.1 billion in sales in the first quarter—or 11.5% of total revenues.

The company is still plenty profitable, though a $39 billion purchase of British broadcaster Sky last year weighed heavily on earnings, leading to the first year-over-year profit decline in more than a decade. Profit growth is expected to return this year, however; analysts anticipate a 12% EPS increase (on 18% sales growth) in 2019, and this week’s announcement that it will sell its 33% stake in Hulu, another streaming company, to Disney for up to $27.5 billion by 2024, should hep matters. As part of the deal, Disney will pay Comcast for its Hulu content over the next five years, guaranteeing Comcast $5.8 billion for its entire Hulu stake.

On top of it all, the chart looks quite good, with the stock just coming off new all-time highs and trading well above its 50- and 200-day moving averages for months.

Comcast stock has been on a steady uptick all year.Oh, and the stock is fairly valued at 16 times earnings, and pays a 1.9% dividend yield.

What to Do with Comcast Stock

So, what’s not to like?

Simple: Comcast stock isn’t Netflix stock. It isn’t Amazon stock. It isn’t AAPL or DIS, either. Yes, it’s doing all the right things in trying to fight the trend away from cable television. But even with a streaming service in the works, Comcast is too much a symbol of the way things used to be—of the increasingly archaic pay-TV model.

I go back to my instant reflex every time I get a special offer in the mail from Comcast—I tear it up. I spent too many years paying way too much money for cable TV that I finally decided I was done, and I’m not going back—regardless of the offer. Video streaming services like Netflix, Amazon Prime and Disney’s forthcoming streaming service are the present and future; Comcast is a symbol of the past.

Sure, if you buy Comcast stock and hold it for the next five years it probably won’t ruin your portfolio. If you want so-so returns and a modest dividend, CMCSA is a safe bet.

But if it’s growth you seek, NFLX, AMZN, AAPL and DIS are all better bets.

Chris Preston

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Investment analyst and Chief Analyst of Cabot Wealth Daily, Chris Preston brings you all the latest from the investing world. Sign up to get updates and breaking news delivered FREE to your inbox. Get unlimited access to our library of complimentary investing reports.

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