Comcast shares fell by -1.3% during the day's morning session, and are now trading at a price of $43.64. Is it time to buy the dip? To better answer that question, it's essential to check if the market is valuing the company's shares fairly in terms of its earnings and equity levels.
The Market May Be Undervaluing Comcast's Earnings and Assets:
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 23.78 and an average price to book (P/B) ratio of 3.46. In contrast, Comcast has a trailing 12 month P/E ratio of 12.2 and a P/B ratio of 2.14.
P/E rations can be placed into context by dividing them by the firm's expected 5-year EPS growth rate, which gives us its Price to Earnings Growth (PEG) ratio. Comcast's PEG ratio is 1.19, which tells us the company is fairly valued in terms of growth. PEG ratios under 1 are considered an indicator of undervalued growth, but we need to keep in mind that many successful companies with excellent share performance have maintained much higher PEG ratios.
As always, a quantitative approach to a stock should be supplemented with a look at qualitative factors, such as the competence of its management team, quality of its corporate culture, and the wide variety of social and economic factors that can impact the success of its product.
EPS Trend Sustained Primarily by Reducing the Number of Shares Outstanding:
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (MM) | $94,507 | $108,942 | $103,564 | $116,385 | $121,427 | $120,871 |
| Revenue Growth | n/a | 15.27% | -4.94% | 12.38% | 4.33% | -0.46% |
| Operating Margins | 20% | 19% | 17% | 18% | 12% | 19% |
| Net Margins | 13% | 12% | 10% | 12% | 4% | 13% |
| Net Income (MM) | $11,862 | $13,323 | $10,701 | $14,159 | $5,370 | $15,151 |
| Net Interest Expense (MM) | $3,542 | $4,567 | $4,588 | $4,281 | $3,896 | $4,043 |
| 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 | $4.25 |
| EPS Growth | n/a | 12.89% | -20.07% | 31.6% | -60.2% | 251.24% |
| Diluted Shares (MM) | 4,640 | 4,610 | 4,624 | 4,654 | 4,430 | 3,564 |
| Free Cash Flow (MM) | $14,523 | $15,744 | $15,558 | $19,972 | $15,787 | $17,028 |
| Capital Expenditures (MM) | $9,774 | $9,953 | $9,179 | $9,174 | $10,626 | $11,434 |
| Current Ratio | 0.79 | 0.84 | 0.93 | 0.85 | 0.78 | 0.7 |
| Total Debt (MM) | $111,743 | $102,217 | $105,466 | $96,672 | $96,581 | $104,156 |
| Net Debt / EBITDA | 3.95 | 3.25 | 3.63 | 2.54 | 3.3 | 2.61 |
Comcast has EPS growth achieved by reducing the number of outstanding shares, irregular cash flows, 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 stable trend.
