Convergence Of Broadband And Wireless Services Will Foster Future Success

Key Takeaways

• Strategic investments in broadband-wireless convergence and simplified pricing could boost customer retention and enhance long-term net margins.
  
• Expanding business services and media segment monetization, alongside theme park growth, may drive significant revenue, EBIT, and EBITDA increases.
  
• Intense broadband competition, price transparency issues, and macroeconomic factors threaten Comcast's growth, customer retention, and revenue across multiple segments.

Catalysts

Operates as a media and technology company worldwide.

• Comcast is investing in the convergence of residential broadband and wireless services, offering gig Internet and gig wireless ubiquitously to a large footprint, which could boost revenue growth by increasing customer retention and acquiring new customers.
  
• The company is simplifying its pricing structure with a nationwide price guarantee and adding promotions such as free mobile lines for broadband customers, potentially leading to improved customer satisfaction and reduced churn, which could enhance net margins in the long run.
  
• Business services are expanding, with Comcast maintaining a leadership position and expecting revenue and margin growth through increased product adoption, cybersecurity services, and the impact of recent acquisitions, indicating a potential increase in EBIT and overall revenue.
  
• Comcast's strategic focus on theme parks, including the upcoming Epic Universe and future European expansion, is expected to continue generating strong growth, which can significantly bolster EBITDA and contribute positively to free cash flow.
  
• Peacock's improved monetization, subscriber growth, and upcoming NBA content are strategic moves expected to reduce streaming losses and drive revenue and EBITDA growth in Comcast's media segment over time.

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 12.7% today to 11.1% in 3 years time.
• Analysts expect earnings to reach $14.0 billion (and earnings per share of $4.36) by about April 2028, down from $15.7 billion today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as $15.4 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 11.6x on those 2028 earnings, up from 8.1x today. This future PE is lower than the current PE for the US Media industry at 16.8x.
• Analysts expect the number of shares outstanding to decline by 4.84% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.48%, as per the Simply Wall St company report.

Comcast Future Earnings Per Share Growth

Risks

• The intensely competitive environment in broadband, including fixed wireless and fiber overbuilds, is impacting Comcast's ability to grow its customer base, which may constrain future revenue growth in this segment.
  
• Despite the largest converged network footprint, Comcast is not winning in the marketplace as expected, highlighting concerns around price transparency and ease of doing business, which could affect net margins and customer retention if not addressed promptly.
  
• In the broadband segment, there is an uptick in customer churn, possibly due to competitive pressures and mobile substitution, which may impact broadband revenue growth and net earnings if the trend continues without effective mitigation.
  
• Economic uncertainties and potential macroeconomic changes could adversely impact Comcast's advertising revenue, especially given its historical cyclicality, thus affecting overall earnings stability.
  
• Preopening expenses for new theme parks, alongside external factors like international travel disruptions due to geopolitical sentiments, pose risks to theme park revenue and, consequently, EBITDA margins in the near term.

Valuation

• The analysts have a consensus price target of $40.495 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 $52.67, and the most bearish reporting a price target of just $30.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $126.3 billion, earnings will come to $14.0 billion, and it would be trading on a PE ratio of 11.6x, assuming you use a discount rate of 7.5%.
  
• Given the current share price of $33.94, the analyst price target of $40.5 is 16.2% 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.