In December, I noted the S&P Telecoms Index traded at a bear market valuation of 9.4 times earnings; if anything, investors’ gloomy consensus on the sector has thickened since, observes Roger Conrad, editor of Conrad's Utility Investor.
Most communications companies in our coverage universe have since lost more ground. Comcast Corp. (CMCSA) — a conservative portfolio holding — has been one of them, sliding another 7 percent so far in 2022.
The primary catalyst: Investor fears the company’s growth of streaming services and broadband customers has stalled in the face of emerging competition from telecoms’ fiber broadband and fixed wireless offerings.
That’s highly debatable, since at last count the company was still consistently adding new customers, including 17,000 in the hyper-competitive business-to-business market in Q4. In fact, it’s actually pretty convincing proof that many investors are missing the big picture here, since Comcast’s revenue, EBITDA, earnings and free cash flow all hit records in 2021.
Management is likely to confirm another year of record results is on track when it reports Q1 numbers and updates guidance on April 28. Probable upside catalysts include continuing record additions of wireless users, which use Verizon Communications’ (VZ) best in class network under a mutually beneficial arrangement.
The Sky unit in Europe and NBC Universal’s theme parks are enjoying an ongoing lift from the waning of the pandemic. And the company still plans $10 billion in share buybacks this year, up from $4 billion in 2021.
Results will also back up the 8 percent dividend increase earlier this year. They likely won’t prevent the investment media from mono focusing on subscriber growth numbers for confirmation of the bearish thesis.
But the news and numbers will further prove that Comcast continues to successfully marry its advanced broadband communications network to increasingly valuable content assets, leveraging strong investor returns.
Overall, Comast is a thriving company, but an unloved stock. The shares currently trade at barely 13 times expected next 12 months earnings. That’s against consistent upper single digit to low double-digit percentage growth on track for the next few years. The stock’s a buy up to $55 for conservative investors yet to get in.
