We reaffirm our Neutral recommendation on Comcast Corp. (CMCSA). The company reported mixed financial results for the first quarter of 2013. While net income outpaced the Zacks Consensus Estimate, revenues fell below the same. Comcast currently has a Zacks Rank #3 (Hold).
Why Kept at Neutral?
Comcast’s Cable business continued to beat market expectations, which helped the company to generate a record high free cash flow. Management is investing heavily across its NBC Universal portfolio. In Apr 2013, Comcast completed the acquisition of the remaining 49% stake of NBC Universal from General Electric Co. (GE).
The company has also completed its major technical innovations, such as DOCSIS 3.0, all digital networks, and a multi-platform content delivery network. Furthermore, newly-launched services such as Xfinity Home, Wi-Fi, X1, Streampix and high-speed Metro Ethernet are the several long-term growth catalysts for the company.
Comcast is aggressively targeting the small and medium-sized business segment. Comcast’s Business Hospitality division provides an integrated package of voice trunking, Ethernet-based Internet and HDTV services. For small-sized enterprises, the company is providing metro Ethernet services in most of its point-of-presences.
Comcast generated over $2.4 billion of revenues from the small and mid-sized business segments in 2012 and is expected to generate $3 billion of revenues from this segment in 2013.
However, continued loss of video customers is a major concern. The pay-TV industry is suffering from the prolonged macroeconomic fluctuations in the U.S. Comcast lost 60,000 residential video subscribers in the reported quarter compared with 37,000 in the year-ago quarter.
In the U.S., cable operators are facing fierce competition from telecom service providers. Verizon Communications Inc. (VZ) and AT&T Inc. (T) are quickly gaining market share from cable MSOs by offering fiber-based TV and other high-speed broadband services.
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