Comcast Corp. (CMCSA) reported blockbuster second quarter 2011 financial results, which exceeded the Zacks Consensus Estimate. This fabulous performance was attributable to higher broadband subscribers’ addition and increased contribution from NBC Universal, where Comcast holds a controlling stake since January 2011. The company witnessed a 10.2% year over year decline in video subscriber customers.
Second Quarter Highlights
Total revenue in the reported quarter came in at $14,333 million, up 50.5% year over year and ahead of the Zacks Consensus Estimate of $13,773 million. The year-over-year upside in revenue was primarily driven by higher Cable Communications and advertising revenue.
GAAP net income in the second quarter of 2011 was $1,022 million or 37 cents per share compared with a net income of $884 million or 31 cents per share in the prior-year quarter. Adjusted (excluding special items) EPS in the reported quarter was 42 cents, which beat the Zacks Consensus Estimate by a penny.
Operating margin in the second quarter of 2011 was 20.5% compared with 21.8% in the prior-year quarter. During the second quarter of 2011, Comcast repurchased 22.6 million shares for $525million. In the reported quarter, Comcast paid dividends totaling $311 million.
Agreements of Analysts
For the third and fourth quarter of 2011, of the 19 analysts covering the stock in the last 7 days, none revised their estimates. Similarly, for fiscal 2011, out of the 17 analysts, none increased or decreased their estimates. Likewise, for fiscal 2012, out of the 20 analysts none revised their estimates.
Most of the analysts prefer to remain on the sidelines due to poor economic growth in the U.S. coupled with huge video subscriber losses.
Currently, the Zacks Consensus EPS Estimate for the third quarter of 2011 is pegged at 40 cents per share. The projected annual growth rate is 24.01%. Similarly, for the fourth quarter, the current Zacks Consensus EPS Estimate of 44 cents per share indicates a gain of 29.01% year over year.
Magnitude of Estimate Revisions
During the last 7 days, for the third and fourth quarter of 2011, the current Zacks Consensus Estimates remain unchanged at 40 and 44 cents, respectively. However, for fiscal 2011, the Zacks Consensus Estimate is a penny below the current estimate of $1.60, while for fiscal 2012; the Zacks Consensus Estimate is in line with the current estimate.
Earning Surprises
With respect to earnings surprises, the company’s consistent track record in the last four quarters is expected to persist in the upcoming quarters. Comcast produced an earnings surprise of 1 cent or 2.44% in the last quarter. The ongoing quarter and the next quarter reflect an upside potential (essentially a proxy for future earning surprises) of 0.00% and 4.55%, respectively, while fiscal 2011 and 2012 contains 2.52% and 2.12% upside potential, respectively.
Our Recommendation
Comcast has become the largest integrated content development and distribution company in the U.S.after completing the acquisition of NBC Universal. We also remain optimistic regarding the company’s diversification, network upgrade and innovative product offering strategies.Comcast continues to post 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 low price. Verizon Wireless (VZ) with FiOS network and AT&T (T) with U-Verse network are likely to make the market highly competitive. Growth of online video streaming companies, such as Netflix Inc. (NFLX) and Hulu have become major threats for the company.
We maintain our long-term Neutral recommendation on Comcast. Currently, Comcast has a Zacks #3 Rank, implying a short-term Hold rating on the stock.
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