Earnings Preview: Comcast Corp. - Analyst Blog

Comcast Corp. (CMCSA) is slated to release its third quarter 2010 results on Wednesday, October 27. The current Zacks Consensus Estimate for the third quarter is 30 cents, representing an annualized growth of 6.82%.

With respect to earnings surprise, over the trailing four quarters, Comcast has outperformed the Zacks Consensus Estimate for all the four quarters. The average earnings surprise was a positive 6.47%, implying that the company has outdone the Zacks Consensus Estimate by the same magnitude over the last four quarters.

Second Quarter Performance

On July 28, Comcast reported its second quarter fiscal 2010 results. Adjusted EPS in the reported quarter was 33 cents compared with 29 cents in the prior-year quarter. Adjusted EPS includes $36 million, net of tax expense related to the NBC Universal Transaction. Adjusted EPS exceeds the Zacks Consensus Estimate of 32 cents. Better-than-expected results were attributable to solid customer growth and an improving advertising market.

GAAP net income was $884 million or 31 cents per share, compared with $967 million or 33 cents per share in the prior-year quarter.  However, profit declined 9% sequentially due to the expenses related to its highly anticipated acquisition of NBC Universal.

Second quarter 2010 total revenue was $9,525 million, up 6.1% year over year. This was also better than the Zacks Consensus Estimate of $9,269 million. Advertising revenues rebounded in the reported quarter with a 23% year-over-year growth.

Agreement of Estimate Revisions 

In the last 30 days, out of the 22 analysts covering the stock, 2 increased their EPS estimates while 4 decreased their EPS estimates for third quarter fiscal 2010.

In the last 30 days, out of the 25 analysts covering the stock, 2 increased their EPS estimates, while 4 decreased their EPS estimates for fiscal 2010. Similarly, for fiscal 2011, out of the 15 analysts covering the stock, 4 increased their EPS estimates while 4 decreased their estimates.

Magnitude of Estimate Revisions

Despite the positive mixed revision, earnings estimates for the third quarter, in the last 30 days, remained flat at 30 cents. Similarly, for the fiscal year 2010 and 2011, the earnings estimates revisions were flat at $1.25 and $1.45, respectively.

Comcast is targeting the small and medium sized business (SMB) segments. Various industry researches estimate that the SMB segment is a $15 billion market opportunity. In second quarter 2010, this segment generated $306 million, up 54.4% year over year. The company aims to generate $2.3 billion of yearly revenues from this segment by 2012.

Comcast-NBC Deal

Last December, Comcast entered into an agreement to buy a 51 percent stake in NBC Universal from General Electric Co. (GE), subject to government approval. Now, the Justice Department and the Federal Communications Commission (FCC) are considering arbitration in programming disputes as a condition of approving Comcast's acquisition of NBC Universal.

The Comcast-NBC deal is expected to give Comcast full control of NBC's television network, broadcast stations, cable channels and a share of the online video provider Hulu, as well as a movie studio and the Telemundo Spanish-language network and TV stations. Many competitors remain concerned that Comcast will gain too much power over access and pricing for programming on television and online.

The cable and satellite companies such as DirecTV (DTV) and Dish Network (DISH) were worried that they will lose leverage while negotiating for programming. But this acceptance in arbitration will allow these companies to negotiate with Comcast for programs.

Once the deal is closed, Comcast will become the media powerhouse armed with a unique control over both content and distribution.

Our Take

Despite being the largest cable MSO of the U.S., Comcast is facing severe competition from both telecom and satellite service providers that started offering subscription TV services. Cablevision Systems Corp. (CVC) became the first U.S. cable MSO to launch a 100 Mbps broadband service using DOCSIS 3.0. Mediacom Communications Corp. (MCCC) is opting for 105 Mbps download speed. Time Warner Cable (TWC) is offering 4G WiMAX services and is also planning to launch the Wideband network for residential customers.

Comcast is also aggressively deploying the DOCSIS 3.0 (also called Wideband) technology to upgrade its existing customers to high-speed network together with all digital networks. The company already upgraded 80% of its customers to DOCSIS 3.0 and 60% of them to all digital networks. The rest of the deployment will be completed by end 2010. With DOCSIS 3.0, the company is now able to offer one of the fastest Internet speeds available in the market. The company has not only doubled the speed for its customers but also offers new higher-speed service plans.

On the other side, we also remain optimistic regarding the company's diversification, network upgrade and innovative product offering strategies.

We maintain our long-term Neutral recommendation for Comcast. Currently,  it is a short-term Zacks #3 Rank (Hold) stock.