Comcast Corp. (CMCSA) is all set to become a media power house armed with a unique control over both content and distribution after completing the acquisition of a controlling stake in NBC Universal. Comcast now serves one-fourth of the U.S.’s pay-TV households supported by a large content-creation empire.
NBC Universal is U.S.’s fourth largest media company, enriched with vast content library. This will facilitate Comcast to expand its own video-on-demand opportunities.
We believe its merger with NBC Universal will not only give Comcast a competitive edge over its pay-TV rivals but also place the company head-on with media giants like Walt Disney Co. (DIS) and News Corp. (NWSA) Comcast, which is known for highly efficient management tactics, may now significantly develop NBC Universal’s sports and movie theaters that collect hefty fees from cable operators.
Comcast reported strong financial results for the second quarter of 2011, easily beating the Zacks Consensus Estimates. This fabulous performance was the combined effect of higher broadband subscribers’ addition and increased contribution from NBC Universal. Although the company continues to suffer huge video subscriber loss, it has actually plummeted 10.2% year over year.
In the second quarter of 2011, revenue and operating cash flow increased 50.5% and 28.5%, respectively, over the prior-year quarter. Free cash flow, a key growth metric for the cable TV industry due to its highly leveraged nature, grew 12.2% year over year. Comcast is very well positioned within its credit ratings. At present, Moody’s Investor Service provides Baa1 ratings and Standard & Poor’s provides BBB+ ratings to Comcast. Both are investment grade ratings.
At present, Comcast turned out to be a highly diversified entertainment house, offering cable-TV, faster Internet connectivity, producing rich TV and film contents and also operating a series of theme parks. However, economic volatility, competition from fiber-based TV, and online video streaming services are some near-term concerns. We thus reaffirm our Neutral recommendation.
