Following the first quarter earnings announcement on May 2, most of the analysts covering Comcast Corporation (CMCSA) have revised their estimates.
The brokers have revised their estimates based on the belief that the company will do well in the core cable operations, NBC Universal business and home security service segments. However, they remain concerned about the surge in programming cost that could increase tariff rates leading to slower ARPU growth.
First Quarter Highlights
On a GAAP basis, quarterly net income was $1,224 million or 45 cents per share, compared with $943 million or 34 cents per share in the year-ago quarter. Adjusted EPS of 45 cents was slightly ahead of the Zacks Consensus Estimate of 42 cents.
Quarterly total revenue of $14,878 million was up 9.6% year over year, and substantially above the Zacks Consensus Estimate of $14,405 million. Operating margin was 18.5% compared with 18.3% in the prior-year quarter.
Agreement of Analysts
Of the 19 analysts covering the stock in the last 7 days, two analysts have revised their estimates upward while three have revised downward for the second quarter of 2012. For the third quarter of 2012, out of the 18 analysts covering the stock, three have revised their estimate upward while one has revised their estimates downward.
For fiscal 2012, out of the 21 analysts covering the stock in the last 7 days, five analysts have revised their estimates upward while one has revised downward. For fiscal 2013 out of the 19 analysts covering the stock, four analysts have revised their estimates upward and two revised downwards.
Currently, the Zacks Consensus Estimate for the second quarter of fiscal 2012 is 49 cents, with a projected annual growth of 16.67%. For the third quarter of fiscal 2012, the Zacks Consensus Estimate of 45 cents indicates an annual gain of 35.52%.
Magnitude of Estimate Revisions
During the past 7 days, the current Zacks Consensus Estimate for the second quarter of 2012 has been in line with the previous estimate of 49 cents while, for the third quarter of 2012, the current Zacks Consensus Estimate exceeded the previous estimate by a penny. The current Zacks Consensus Estimate for fiscal 2012 and 2013 exceeds the prior estimate by a penny.
Earnings Surprises
The company has outdone the Zacks Consensus estimates in three out of the four previous quarters. In the first quarter of 2012, Comcast Corporation outpaced the estimate by 3 cents or 7.14%.
The estimates for the ongoing and third quarter of fiscal 2012 are in line with the Zacks Consensus Estimate. Similarly, the estimate for fiscal 2012 is also in line with the Zacks Consensus Estimate. However, fiscal 2013 estimates contain an upside potential (essentially a proxy for future earnings surprises) of 0.45%.
Our Recommendation
We believe that Comcast Corporation will benefit from the deployment of Xfinity TV, an on-demand web based service that offers video programming and internet features. Amidst the current economic situation, the company’s ability to reduce its video subscriber churn rate is a positive. Additionally, introduction of several innovative services like Xcalibur services, home security services and expansion of Wi-Fi network will be the potential growth driver for the company.
Cable operator like Comcast Corporation are facing stiff competition from the telecom service providers like Verizon Communication Inc (VZ) and AT&T Inc (T) who are gaining market share in the fibre-based TV and other high speed broadband service segment.
Moreover, online video streaming service providers such as Netflix Inc (NFLX), Hulu.com and uTube are potential threats to cable operators. The company is facing additional pressure from rival Time Warner Cable Inc (TWC) in the small and medium business (SMB) segment.
Considering these factors, we maintain our long-term Neutral recommendation on Comcast Corporation. Currently, Comcast Corporation has a Zacks #3 Rank, implying a short-term hold rating on the stock.
About Earnings Estimate Scorecard
As a PhD from MIT, Len Zacks proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at: http://www.zacks.com/education/
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