Project Genesis And SpinCo Will Improve Broadband And Media Offerings

Key Takeaways

• Comcast's bundling strategy and broadband upgrades aim to drive convergence revenue and boost overall growth by enhancing customer offerings.
  
• Strategic acquisitions and investments in theme parks and streaming services focus on capturing market share and diversifying revenue streams.
  
• Intense competition and high investment in new growth initiatives could pressure Comcast’s broadband revenue and margins, affecting future revenue growth.

Catalysts

Operates as a media and technology company worldwide.

• Comcast plans to aggressively leverage its wireless capabilities by bundling mobile with higher-tier broadband products to drive convergence revenue growth. This strategy targets both new and existing customers, potentially boosting overall revenue growth.
  
• The expansion and upgrade of Comcast's broadband network through Project Genesis aim to deliver multi-gigabit symmetrical speeds, improving performance and reducing points of friction for customers. This is expected to result in increased broadband revenue with the introduction of new pricing and packaging.
  
• Comcast's strategic focus on acquisitions like Nitel to enhance its Business Services segment is poised to capture a greater share of the $60 billion addressable market. This is likely to boost revenue and EBITDA growth with sustained strong margins.
  
• The spin-off of specific cable networks into SpinCo is expected to enhance operational focus both within the spin-off and the remaining NBCUniversal business. This may lead to better alignment with market dynamics and improve overall earnings potential for the media segment.
  
• The investment in theme parks such as the opening of Epic Universe and the continued development of Peacock streaming services, especially with new sports content like the NBA, are key growth drivers likely to increase revenue contribution from diverse segments.

Comcast Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Comcast's revenue will decrease by 0.7% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 13.1% today to 11.5% in 3 years time.
• Analysts expect earnings to reach $14.6 billion (and earnings per share of $4.48) by about March 2028, down from $16.2 billion today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as $17.1 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.5x on those 2028 earnings, up from 8.4x today. This future PE is lower than the current PE for the US Media industry at 13.5x.
• Analysts expect the number of shares outstanding to decline by 3.63% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.69%, as per the Simply Wall St company report.

Comcast Future Earnings Per Share Growth

Risks

• The negative net broadband subscriber additions of 139,000 in the fourth quarter indicate intense competition and challenges in maintaining market share, which could impact future revenue growth in this segment.
  
• The continued overbuilding by fiber operators and expansion of fixed wireless services present ongoing competitive threats that may affect Comcast's broadband revenue and margins.
  
• The reliance on seasonal events such as the Olympics and theme park openings, which are subject to temporary headwinds and market saturation, could pose risks to maintaining consistent revenue and EBITDA growth.
  
• Spin-off of cable television networks and digital assets might lead to initial disruptions or integration challenges, potentially impacting Content & Experiences revenue and operational efficiencies.
  
• The focus on high investment in new growth initiatives, such as wireless and broadband convergence strategies, could lead to increased capital expenditures and potential margin pressure if execution does not meet growth expectations.

Valuation

• The analysts have a consensus price target of $43.154 for Comcast based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $55.0, and the most bearish reporting a price target of just $35.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $126.4 billion, earnings will come to $14.6 billion, and it would be trading on a PE ratio of 12.5x, assuming you use a discount rate of 7.7%.
• Given the current share price of $36.01, the analyst price target of $43.15 is 16.6% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.