We've been asking ourselves recently if the market has placed a fair valuation on Comcast. Let's dive into some of the fundamental values of this large-cap Telecommunications company to determine if there might be an opportunity here for value-minded investors.
A Lower P/B Ratio Than Its Sector Average but Trades Above Its Graham Number:
Comcast Corporation operates as a media and technology company worldwide. The company belongs to the Telecommunications sector, which has an average price to earnings (P/E) ratio of 18.85 and an average price to book (P/B) ratio of 3.12. In contrast, Comcast has a trailing 12 month P/E ratio of 11.6 and a P/B ratio of 2.04.
Comcast's PEG ratio is 1.47, which shows that the stock is probably overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.
Increasing Revenues but Narrowing Margins:
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (MM) | $94,507 | $108,942 | $103,564 | $116,385 | $121,427 | $120,605 |
| Gross Margins | 20% | 19% | 17% | 18% | 12% | 12% |
| Operating Margins | 20.0% | 19.0% | 17.0% | 18.0% | 12.0% | 12.0% |
| Net Margins | 13.0% | 12.0% | 10.0% | 12.0% | 4.0% | 5.0% |
| Net Income (MM) | $11,862 | $13,323 | $10,701 | $14,159 | $5,370 | $6,507 |
| Net Interest Expense (MM) | $3,542 | $4,567 | $4,588 | $4,281 | $3,896 | $3,943 |
| Depreciation & Amort. (MM) | $8,281 | $8,663 | $8,320 | $13,804 | $13,821 | $14,050 |
| Earnings Per Share | $2.56 | $2.89 | $2.31 | $3.04 | $1.21 | $1.71 |
| Diluted Shares (MM) | 4,640 | 4,610 | 4,624 | 4,654 | 4,430 | 3,800 |
| Free Cash Flow (MM) | $14,523 | $15,744 | $15,558 | $19,972 | $15,787 | $15,821 |
| Capital Expenditures (MM) | $9,774 | $9,953 | $9,179 | $9,174 | $10,626 | $11,434 |
| Net Current Assets (MM) | -$21,084 | -$21,665 | -$20,277 | -$25,161 | -$26,456 | -$28,283 |
| Long Term Debt (MM) | $107,345 | $97,765 | $100,614 | $92,718 | $93,068 | $94,972 |
| Net Debt / EBITDA | 3.95 | 3.25 | 3.63 | 2.54 | 3.3 | 3.41 |
Comcast has slimmer gross margins than its peers, declining EPS growth, and a highly leveraged balance sheet. On the other hand, the company has growing revenues and a flat capital expenditure trend working in its favor. Furthermore, Comcast has average net margins with a negative growth trend and irregular cash flows.
