6 Years Of Dead Money - Why Comcast May Be Significantly Undervalued

Core Viewpoint - Comcast Corporation has underperformed significantly compared to the S&P 500 since January 2018, with a share price increase of only 7.5% versus a 75% increase for the S&P 500 during the same period, indicating a lack of investor confidence and trust in the company [2][4]. Financial Performance - Comcast's stock has seen a decline of 5.3% since August 2023, while the S&P 500 has returned 5.9% in the same timeframe [4]. - The company is expected to achieve EPS growth of 7% in 2023, followed by 10% in 2024, 7% in 2025, and 14% in 2026, indicating a potential for consistent growth [6][8]. Valuation - Comcast's current P/E ratio is 11x earnings, significantly lower than its normalized valuation of 22.5x earnings, suggesting that the stock is undervalued [8]. - If the stock were to trade at a valuation closer to 20x earnings, it could rise approximately 50% from its current price [8]. Business Segments and Growth Drivers - Comcast generated over $120 billion in revenue in 2022, primarily from its Connectivity & Platforms segment, which is the leading broadband provider in the U.S. [9]. - Key growth drivers include: - Residential Broadband: 32 million subscribers, benefiting from increasing demand for high-speed internet [11]. - Wireless Business: Approximately 6 million lines with a year-over-year revenue growth of around 16% [11]. - Business Services: Nearly $10 billion in revenues with 60% incremental margins [14]. - Theme Parks: Significant growth with a record-breaking year in 2022 and continued expansion in 2023 [18]. - Streaming (Peacock): Achieved 30 million paying subscribers as of 3Q23, with substantial growth from 1 million in 2020 to 28 million in 2023 [20]. Cash Flow and Shareholder Returns - Comcast is expected to generate $13.4 billion in free cash flow in 2023, with projections rising to $15.4 billion by 2025, indicating strong cash generation capabilities [21]. - The company currently pays a quarterly dividend of $0.29 per share, yielding 2.7%, with a five-year dividend CAGR of 8.8% [22]. - Comcast has repurchased 11% of its shares over the past five years, demonstrating a commitment to returning value to shareholders [23]. Investment Outlook - Despite challenges in unlocking shareholder value, Comcast's diversified business model and strong cash generation position it as a compelling long-term investment opportunity [26]. - Successful management of growth projects and navigating interest rate challenges are crucial for realizing potential double-digit annual returns [26].