With $120 billion in revenues, Comcast (CMCSA) — the latest addition to our growth and income portfolio — is one of the world’s largest media and entertainment companies, notes Bruce Kaser, editor of Cabot Undervalued Stocks Advisor.

Its properties include Comcast cable television (with 34 million cable, video and voice subscribers), Universal movie studios and theme parks, NBC and Telemundo television networks, Peacock TV, and the Sky media company in Europe. Comcast also owns the Philadelphia Flyers professional hockey team and a 33% stake in the Hulu streaming service.

Comcast shares have tumbled 50% from their late 2021 peak and now trade in-line with their mid-2015 price. Investors worry about cyclical and secular declines in advertising and a secular decline in cable subscriptions as consumers shift toward streaming services, as well as rising programming costs and incremental pressure as phone companies upgrade their fiber networks.

But competition has been intense for decades yet Comcast always seems to maintain its revenues and profits. In the second quarter, the company produced 5% revenue growth and 10% profit growth — hardly the markings of a company on the brink.

Comcast reported a decent quarter that was consistent with our thesis. Revenues fell 2% from a year ago but were in line with estimates. Adjusted earnings of $0.96/share rose 10% and were 7% above estimates. Even with the weaker ad revenues,

Comcast’s profits increased by 6% as measured by adjusted EBITDA. The company kept its expenses restrained (falling 5%), helping increase the profit margin to a healthy 32% from 30% a year ago. Cable profits were a record, and profits at NBCUniversal rose 25%.

Debt net of cash on the balance sheet rose an incremental $1.3 billion from a year ago, but the leverage ratio declined incrementally due to higher profits. Comcast used its healthy free cash flow of $3.4 billion (+5% from a year ago) to repurchase $3.5 billion of shares and also paid its $1.2 billion in quarterly dividends.

Our price target for Comcast shares is $42, based on 6.5x EV/EBITDA using a conservative estimate for 2024 results. The shares offer an attractive 3.4% dividend yield.

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