Comcast Corp. (CMCSA) reported excellent fourth quarter 2010 financial results, where both the earnings per share (EPS) and revenues exceeded the Zacks Consensus Estimate. The robust result was followed by the hike in the annualized dividend rate by 19% to 45 cents per share.
During the quarter, all the three segments witnessed growth in revenue, with advertising revenue, which is one of the key growth drivers, flourishing in the reported quarter with 29% year-over-year growth.
Fourth Quarter Highlights
GAAP net income for the fourth quarter 2010 was $1,018 million or 36 cents per share compared with $955 million or 33 cents per share in the prior-year quarter. Adjusted EPS in the reported quarter was 34 cents, which surpassed the Zacks Consensus Estimate of 32 cents.
Fourth quarter of 2010 total revenue was $9,721 million, up 7.2% year over year. This was also better than the Zacks Consensus Estimate of $9,555 million.
Operating income increased approximately 10.8% year over year to $2,013million, attributable to solid operating results in the Cable and Programming segment, partially offset by NBC Universal-related transaction cost of $21 million. Operating margin in the quarter was 20.7% compared with 20.0% in the prior-year quarter.
Agreements of Analysts
Of the 17 analysts covering the stock in last 30 days, 3 analysts upwardly revised their estimates for the first quarter of fiscal 2011, while 2 analysts revised their estimate downward for the same period. Similarly, for the second quarter of fiscal 2011, 2 analysts increased their estimates, while only 1 analyst revised its estimate downward.
For fiscal 2011, out of 24 analysts, 13 raised their estimates, while 3 of the analysts decreased their estimates. For fiscal 2012, out of 20 analysts, 8 revised their estimates upward, while 1 moved in the opposite direction.
We believe the positive sentiment results from higher advertising revenue and affiliate fees. As the economy is showing signs of improvement, several enterprises are raising their advertisement budgets.
This, in turn, is benefiting the media industry and Comcast is no exception. After the completion of the merger with NBC Universal, the company has further strenthened its market share and enjoys a strong brand value.
Currently, the Zacks Consensus EPS Estimate for the first quarter of fiscal 2011 is pegged at 35 cents. The projected annual growth is 13.09%. Similarly, for the second quarter, the current Zacks Consensus EPS Estimate of 39 cents indicates a gain of 19.07% year over year.
Magnitude of Estimate Revisions
In synergy with the upward revision of estimates, the Zacks Consensus Estimate remains in line at 30 cents, during the last 30 days, for the first quarter 2011. Similarly, for the second quarter of fiscal 2011, the Zacks Consensus Estimate increased by only 1 cent from 38 cents to 39 cents for the same period.
For fiscal 2011, the Zacks Consensus Estimate inched up 3 cents from $1.47 to $1.50, in the last 30 days. Similarly, for fiscal 2012, the Zacks Consensus Estimate upped 2 cents, from $1.70 to $1.72.
Earning Surprises
With respect to earnings surprises, the company’s consistent track record in the last four quarters is expected to persist in the coming quarters. CMCSA produced an earnings surprise of 2 cent or 6.25% in the last quarter.
There is no surprise expected for the ongoing quarter but the upcoming quarter contains 2.56% upside potential (essentially a proxy for future earning surprises) while for fiscal 2011 and fiscal 2012 Zacks Consensus Estimates upside potentials are 1.33% and 1.74%, respectively.
Our Recommendation
The company has become the largest integrated content development and distribution company of the U.S. after completing the acquisition of NBC Universal. We also remain very much optimistic regarding the company’s diversification, network upgrade and innovative product offering strategies. In the last one year, the company posted strong growth in revenue and free cash flow.
However, Comcast is facing severe competition from both telecom and satellite service providers that started offering subscription TV services at a lower price. Verizon Wireless (VZ) with its FiOS network and AT&T (T) with its U-Verse network are likely to make the market highly competitive. The recent growth of online video streaming companies such as Netflix Inc. (NFLX) and Hulu have become major threats to the company. Furthermore, the company has a huge debt, which also remains a major concern.
We, thus, maintain our long-term Neutral recommendation for Comcast. Currently, Comcast has a Zacks#3 Rank, implying a short-term Hold rating on the stock.
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