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Navellier Growth

May 2, 2012

Stock of the Day

Recommendation: Buy

Welcome to the Stock of the Day for May 2, 2012. With almost a quarter of the U.S. pay TV market under its belt, Comcast Corp. (CMCSA) is the undisputed king of American cable. However, over the years the company has become notorious for low customer satisfaction levels. As internet-based programming continues to climb, the question on everyone's mind is whether Comcast is adapting to the times or if it will lose its crown. Let's find out.

Company Overview: Although Comcast is best known for being the largest cable operator in the United States, this company has also diversified into being an internet and telephone service provider. As such, Comcast has the unique position of being able to offer customers a "Triple Play" package, which includes cable, internet access and telephone services bundled into one service. The company has attempted a series of high-profile acquisitions, including a failed $66 billion bid for The Walt Disney Company. Most recently, the company successfully completed a joint venture with General Electric (GE) to form NBCUniversal, an American media and entertainment company. This company employs 126,000 worldwide.

Industry Breakdown: There are currently 42 companies in the Cable TV Systems industry. Of those, Comcast Corp. is the third largest in terms of market cap. The company also stands out in terms of its sales growth (4th), its 2.1% annual dividend yield (5th) and its Price/Earnings to Growth ratio (6th). Additionally, the company's earnings growth, long-term growth rate and return on equity all fall in the top quartile for the industry. Comcast Corp.'s main competitors are DIRECTV Inc. (DTV) and Dish Network Corp. (DISH). Of these three companies, Comcast has the highest sales growth and operating margin, but has the lowest gross margin.

Earnings Buzz: In the first quarter, Comcast Corp. posted record profit thanks to a particularly good Super Bowl turnout, but especially due to booming sales from NBCUniversal LLC. The company was responsible for a number of successful films in the first quarter, including Dr. Suess' The Lorax and Safe House; sales in the Filmed Entertainment segment increased 22% year-over-year. Similarly, Comcast's total sales climbed 23% year-over-year to $14.88 billion, which topped the $14.43 billion consensus estimate by 3%. Net income jumped 30% to $1.22 billion, or $0.45 per share. Analysts forecast earnings of $0.42 per share, so Comcast posted a 7% earnings surprise.

Current Ratings: Before you buy any stock, you should always run it through my free Portfolio Grader ratings system.  With the exception of last August, when it was downgraded to a C, this stock has stayed consistently at a B-rating for the past year. Comcast Corp. is particularly strong in terms of its sales growth and cash flow, and also does well in terms of earnings growth and its track record of beating analyst estimates. However, the company could stand to improve its operating margin growth as well as its return on equity, so Comcast Corp. receives a B for its overall fundamentals. Additionally, buying pressure for this stock is solid, so this is a B-rated stock overall.

Bottom Line: I consider CMCSA a buy. Even so, if you hold this stock, it would be wise to keep tabs on its buying pressure, because even a slight drop could send CMCSA into hold territory.

Sound Off: What do you think about CMCSA? Are you a buyer at current prices? Let me know what you think by posting on our wall on Facebook.

For more stock grades and commentary, please visit NavellierGrowth.com!

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