Comcast Corporation Financial Analysis

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Project 2: Case Study of One Firm: Comcast Corporation CMCSA

A Fundamental Investor’s Analysis of The Past, Present & Future:

By:

 

Introduction/Background

Comcastt Corporation Comcas Corporation,, originall originally y American American Cable Systems, Systems, was founded in Tupelo, Mississippi Mississippi in 1963. The company began as a single service cable provider and grew to become one of the leading US firms firms in the industry industry of Cable television television systems systems (specifically the consumer sector).

The company also ranks fairly high in the

telecom telecommun munica icatio tions, ns, broadc broadcast asting ing and box office office ticket ticket sales sales indust industry ry..

Today Today the

company serves over 47 million customers including video, high-speed internet and Comcast digital voice customers. customers. The company now provides a wi wide de rage of product and consumer services including Comcast Business Class, Programming Group, and Comcast Spectat Spec tator. or.

Howeve However, r, their their main focus focus has consiste consistentl ntly y centere centered d on delive deliverin ring g high high

quality programming content and the development, organization and running of multiple cable networks. During the first 10 years or so, American Cable Systems grew at a relatively modest pace. pace. Eventually Eventually,, the company changed the name to Comcast Comcast Corporation Corporation in 1969 and incorporated incorporated in Pennsylva Pennsylvania. nia. By 1972 the company company was ready to go publ public ic and made its first first public public offerin offering g on the NASDAQ NASDAQ Stock Stock Market. Market. From From there, there, the company began to follow an aggressive investment strategy that not only expanded its current business but enabled it it to enter into numerous new business lines. The first major  major  investment was in 1986, when the company doubled its size with the acquisition of 26% of Group W Cable. After After that, the company company went on acquir acquiree and invest in companies companies such as: QVC, American Cellular Network Corporation (AMCELL), The Golf Channel, Greater Philadelphia Cablevision, Home Team Sports (now merged with Comcast Sports

 

Net), AT&T Broadband, and more recently PBS, a joint venture with GE, and the E networks. Today the company is the largest cable and home int internet ernet service provider in the US. (the information presented in this section is from Ref. 1 and 2 listed in the Reference section that is included at the end of this report). Understanding The Business

A typical mistake of the novel investor is that he/she doesn’t take the time to gain a true understanding of the business. Although important, a mere historical summary summary is far to abstra abstract, ct, if not outdated outdated,, to make make a str strong ong connectio connection n to the current current market market statistics. At the same time, trying to look over too many pieces of information can make your analysis extremely time consuming, complicated, and expensive if seeking outside assistance (specializing in that industry). Some investors try to take the easy way out by trusting that the market has done the work for them (passive), while others guess widely based bas ed off of a gut feeling feeling they have about about a company company (intuit (intuitive ive). ). The problem problem with with taking the easy way out; is the risk of paying too much for growth that doesn’t add value. Even if the investor happens to make a good investment, the results cannot be duplicated withoutt knowing why or how the company got there. withou there. As a fundament fundamental al investor, investor, I can decrease my risk of paying too much and avoid information overkill by limiting my focus to the major factors factors that affect this company company and the industry in general. general. I summarized summarized these points in a S.W.O.T analysis (see Table 1 in the Appendix). Behind The NumbersReviewing The Financial Statements

The financial statements tell a story about value; the story of how the business added or removed value, value, and how it has changed over a period of time time.. Unfortunat Unfortunately, ely, the statements do not tell the whole story. Luckily, I was able to fill in some some of the gaps

 

for Comcast’s Comcast’s story by using my understanding understanding of the business dis discusse cussed d above. The current financial statements represent the middle of the story; they only tell where the company is now. Present financial conditions conditions affect only the investors and shareholders who were already invested in Comcast at the time. For managers, new investors, and those with a continuing interest (current shareholders/debtholders), their primary concern is what the future financial financial performance and market position wil willl be. The problem is that we have no way of knowing knowing with with exact precisi precision on what the future future will will bring. bring.

The

solutions: form our own opinion, or estimates, about the future outcome, or follow the opinion of one of the other market participants, if not the market. The current stock market price is determined by the supply and demand that ex exists ists within wit hin the market. market. That That price is a reflec reflectio tion n of the current current market market’s ’s opinion opinion of the company. That opinion is based on a wide range of public public and even private information; information; some of which is directly related to the company (earnings, growth potential, etc.), while others oth ers relate relate to the system systemati aticc risk risk that that is outside outside of the company company’s ’s control. control.

As

mentioned earlier, the problem with price is that it does not always repr represent esent value. Part of that value is reveal revealed ed in the curren currentt fi financ nancial ial stateme statements nts.. To extract extract that value, I continued contin ued on to step two in the process process of fundamental fundamental analysis: analysis: analyzing analyzing the informati infor mation. on. I began my analysis analysis by making a simple time time series using the company’s company’s annual report for the prior four years (including management’s notes) and the FASB Template. Included in that template were were a number of other financial financial analysis tools that I found to be extremely helpful. helpful. The information I analyzed from the trend, trend, common size, and ratio analysis, told me how the company had performed in the past and what direct dir ection ion this company company was heading. heading.

Onc Oncee I unders understan tand d the company’ company’ss intern internal al

 

condition, I needed to know how Comcast rated when compared to the rest of the industry. indust ry.

Using Using a number of financial financial ratios ratios & statistic statistics, s, such as the P/E ratio, ratio, I rated

Comcastt position against Comcas against each competitor (select (select individ individuals uals and the industry) industry).. To test the accura accuracy cy of this this benchm benchmark ark I review reviewed ed the opinio opinions ns within within the company, company, other  other  analysts, and the market in general. general. Using all of this information, I was finally finally ready to evaluate Comcast in terms of its current market price, to determine the appropriate investment invest ment strategy strategy.. As a final final check I ran ran through through a residual residual valuation valuation analysis analysis.. In concluding my analysis, I added recommendations for improving Comcast’s financial operati oper ations ons..

I have summar summarized ized each step below; below; noting noting inform informati ation on I found to be

particularly useful or detrimental to my evaluation. Evaluation Of Comcast’s Four Basic Financial Statements---Complications During The Early Stages Of Analysis

Using the FSAP Template, I entered the financial data from the firm’s financial statements state ments,, as reported in the Annual 10k report from 2004 to 2009 (2004 was included in order to have a complete review for 2005). Once entered, I examined each statement statement very ver y carefu carefully lly,, noting noting genera generall patter patterns ns and major major yea yearr to year year cha change ngess within within each each statement state ment and as a whole on the Data tab. I followed followed a similar procedure procedure while looked looked over the ratios, ratios, line item percent percentage ages, s, and growth growth rates rates on the Analys Analysis is tab. After  After  comparing notes, I quickly realized that year to year activity during that period was extrem ext remely ely volatile volatile..

This This volati volatilit lity y was directl directly y relate related d to the volati volatilit lity y in the US

economy,, which comprises economy comprises approximately approximately 95% of the business. business.

Volatilit Volatility y makes it

extremely difficult to make a true assessment of the firm’s current and possible future position. This inconsistency in Comcast’s Comcast’s financial statements decreases tthe he validity and

 

rel reliab iabili ility ty of the financ financial ial trend trend analys analysis is and any average averagess that that were were calcul calculate ated d for  benchmarking benchma rking purposes. purposes. In order to correct for this decrease, decrease, I ident identified ified each material material year to year variance variance and researched researched the cause cause of said variance. variance. The majority majority of my research utilized the management discussion and analysis section, the additional notes and supplementary information sections filed with the consolidated financial statements, which whi ch were all included included in each each year’s year’s Annual Annual 10K report. report. Once Once my researc research h was comple com plete, te, I contin continued ued on with with my analysi analysis. s.

The next four section sectionss summar summarize ize and

highli hig hlight ght some some of the more cri critic tical al items items that that were were uncover uncovered ed in readin reading g over over the financial statements. Evaluation Of Comcast’s Four Basic Financial StatementsThe Balance Sheet

Reviewing a firm’s balance sheet is critical critical to the valuation process. The balance sheet, or “snapshot,” “snapshot,” (as it is often referred to in the financial financial community), community), summarizes summarizes the financial condition condition of the business at one specific specific point in time, making it notably unique from the the other financial financial statements. statements. While While uncovering uncovering how the company has histor his torica ically lly positi positioned oned itself itself over over the years; years; five five of the li line ne items items were were partic particula ularly rly concerning; those line items were: cash & cash equivalents, marketable securities, PP&E, intangibles intang iblesspeci specifical fically ly franchise franchise rights, and retained retained earnings. earnings.

Before Before going any

further, I had to resolve the questions that each of these line items (and the overall BS) “suggested.” The explanations to each of these questions questions are outlined below as foll follows: ows: 1.)

Why has there there been an overall overall decline decline in the compan company’s y’s most most lliqu iquid id assets assets?? Is

thi thiss decline decline an indica indicator tor of increa increasin sing g invest investmen mentt risk risk (liqu (liquidi idity ty and going going concern concern issues)?

 

-Thee market -Th market value value of the firm’s firm’s securitie securitiess has decrea decreased sed primar primarily ily becaus becausee of the financial conditions within the market, and losses suffered on unusual items (nonrecurring derivative transactions). -Liquidity and going concern risk risk does not pose a significant significant risk at this time. Free cash flow generated generated by operations operations continues continues to be strong. In addition, addition, the company has a sizeable credit line with its vendors to tap into for short-term liquidity needs. 4.)

What are the “intangible franchise rights” and how does the company account for 

these items? -Intangible franchise fees are the rights the firm purchases in order to operate and offer  services to customers in in that geographical area. As with PP&E, explained below, future investments in these assets will likely decline as a result of the aggressive expansion efforts taken years prior. -Currently, these assets have an indefinite useful lifethus no amortization expense recorded. The firm annually tests tests these assets for impairment by using a discounted discounted cash flow analysi analysis. s. So far, no impairm impairments ents have been been made. However, However, future future impairments impairments could be possible if these rights were later limited due to changes in regulatory and market conditions. 5.)

Why has the growth growth rate in PP&E declined declined over the last few years? years?

-Capit -Ca pital al expendi expenditur tures es for cable cable servic services, es, histor historica ically lly a very very sizeabl sizeablee porti portion on of all investments, have gone down. Other operating investments investments were not significant. -New customer growth rate for cable services has decline due to fewer customer  segments to market to (market saturation) and the downturn in the housing market (as foreclosures increased, the current customer base decreased).

 

6.)

Why are retained retained earnings earnings growing growing at an increasing increasing rate--Does rate--Does the company company have

plans to use those funds for future investment, or are they contractually obligated to retain earnings under a debt agreement? -A portion of retained earnings are appropriated for: stock repurchases, pensions obligations, and future dividend payments. -Part of the reason for maintaining the stock repurchase plan is for the NBC Universal transaction agreement the company has with GE. -The GE transaction, once closed, will require a cash payment of roughly $7.2 bill billion ion (expect (expected ed to be paid paid at the end of 2010). 2010). This This will give give Comcas Com castt a 51% contro controlli lling ng intere interest st in the newly newly formed formed company company.. Beyond the initial cash payment, the company will have the option to purchase the remaining interest from GE, over two future redemption periods using either cash or stock. The stock repurchase plan is expected to continue until the remaining $3.3 billion approved is spent or the plan’s expiration at the end of 2012. -Increases were partially due to a number of o f new accounting and reporting requirements and increased regulation requirements for the industry. -Additionally, lenders and creditors require that the company maintain certain financial ratio and appropriate a percentage of retained earnings for debt obligations. Evaluation Of Comcast’s Four Basic Financial StatementsThe Income Statement

The income statement is essentially an outline of the firm’s financial performance over a fixed period of time, time, broken out into operating operating and non-operating non-operating sections. sections. The statement reveals the capabilities of the firm in generating sales from current product/

 

services lines (plus additional non-operating items), and converting those sales into net income.. Net income represent income representss the profit or residual residual clai claim m that remains remains to common shareholder shareh olderss (minus (minus any preferred/ preferred/minor minority ity interest), interest), after subtracting subtracting out all of the expense incurred over that same period to generate those revenues. A firm can increase profitability by doing one or all of the following: increase the sheer volume of current product lines (assuming marginal cost rates remains the same), create new product lines thatt have tha have higher higher profit profit margin margins, s, elimin eliminate ate indivi individual dual expens expenses es or discon discontin tinue ue entire entire business lines that do not add value, and reduce the negative impact of the those expense that are core to operations (with efficient and effective process improvements). Unfortunately, due to a number of o f limitations, the income statements provide only a weak  assessment asses sment of the present and future potential. potential. These limitatio limitations ns will be listed listed below, followed by a comparison of the best and worst years of financial performance, and a brief overview of the most recent year’s performance. Limitations/Concerns In Evaluating The Income Statement -The decline in the US economy, created large variances in P&L line item accounts,

making it difficult to accurately evaluate performance year over year. -Sales from cable services represent a large portion of the total sales revenue generated by the company. company. Over the last last few years, addition additional al customer customer cable sales have have gone down due to the market getting closer to market saturation. -Based on the balance sheet analysis, outside investments have also declined. -The -The compa company ny has has hi hist stor oric ical ally ly re reli lied ed on it itss free free cash cash fl flow ow from from opera operati ting ng revenues to pay its debt obligations.

 

-The company has limited power in managing its two largest operating expenses: network  progra pro grammi mming ng fees fees and video video progra programmi mming ng fees.

Rate Rate increa increases ses are commo common n and

expected n the future. Financial Performance Milestones-Triumph vs Defeat

Looking over the last five years, there are two years that visibly stand out among the rest, rest, 2006 & 2008. 2008. In 2006, the company company had its over overall all best yea yearr of fi financ nancial ial perfor per forman mance. ce. It was the only year year in which which the company company was able to drive drive up sales sales revenue, without marginally increasing every operating costthus converting more sales int into o profit profits. s. The growth growth in sales relates relates to new custome customerr subscr subscript iption ionss and pricing pricing markups for customer related related fees. Expenses related to cable programming fee rrates ates were actually increased during this period, but, total expenses were maintained by the gains on the sale of investment assets assets and the gain on discontinued operations. During this period, the company’s stock was trading at an all time high (for year-end purposes) and investing heavily to expand its cable segment operations. Two years later in 2008, the US economy saw its worst recession since the Great Depress Depr ession ion..

Comcas Comcast, t, as did many US companie companies, s, began to see their their financi financial al

performance perfor mance go down. Comcast’s Comcast’s experienced experienced a drop in comprehensi comprehensive ve income, stock  market price, price, and sales and customer customer subscriptions subscriptions growth growth over the prior year. Despite Despite these the se decreases decreases,, the comp company any did have increa increases ses in terms terms of operat operating ing profit. profit.

The

increase was however limited due to increased operated expenses from supplier rate increases. The reason net income fell below the prior prior year was due to investment losses losses and impairments which were reported as other accumulated income/loss in a separate statement following the statement of stockholder’s equity.

 

Financial Performance-2009

As the US economy began to stabilize and even improve, so did Comcast’s financial financ ial performance. performance. Sales revenue revenue increased increased for all of Comcast’s major major business business sections. secti ons. Operating Operating profit profit also increase increase in both amount and as a percentage percentage of sales  partially parti ally due to streamlining streamlining operati operations ons (layoffs). (layoffs). Non operating operating income (loss) also improved--interest expense decreased due to prior and current year debt retirements and decreas decr eased ed in int intere erest st rat rates es and invest investmen mentt income income (loss) (loss) improv improved ed due to report reported ed invest inv estmen mentt gains gains (realize (realized d and unrealiz unrealized) ed)..

The company’ company’ss stock stock price was down down

slightly, however, that may have been due to the larger dividends declared and paid out during the year. year. Net incom incomee and earnings per share share for common were at record record highs, even beating out 2006 figures. figures. Looking Looking at just the income statement statement dollar dollar amounts, it would appear that Comcast has bounced back and is moving in the right direction  especially especi ally if comparing comparing 2009 to 2008. On the other hand, Comcast’ Comcast’ss rate of growth actually declined below 2008 percentages, so their ability to generate additional earnings or value is still declining. declining. The problem in figuring figuring out Comcast’s true position position at this point, is not knowing how much, (if any) of that decline is due to the depressed economic conditions. The section “Comcast vs. The Competition” Competition” below helps to shed some light on this issue, but first an analysis of the two remaining statements. Evaluation Of Comcast’s Four Basic Financial StatementsThe Statement Of Cash Flow

The statem statement ent of cash cash fl flow ow shows shows which which of the fi firm’ rm’ss activi activitie tiess (opera (operatin ting, g, invest inv esting ing,, or financ financing ing)) generat generated ed cash, cash, where where the compan company y used used those those funds, funds, and explains explai ns how cash is affected affected by changes in the prior prior two statements statements.. It is also very very

 

useful in valuing the firm in terms of liquidity and solvency riskboth of which seemed to be cause cause for concern concern after after review reviewing ing Comcast Comcast’s ’s stateme statements nts..

The financi financing ng and

investing activities only provided little, if any, positive cash flow and even that was declining. The net cash used by the investing activiti activities es is decreasing, while the the cash used by financing financing has been increasing increasing sinc sincee 2006. During that that same time frame, frame, the cash provided provid ed by operations operations has been increasing increasing at a declining declining rate. These trends trends combined combined with few other liquid assets on the balance sheet and declining sales growth from the leading business segment (cable) signal major cash fl flow ow problems ahead. If the returns on current business lines continue to decline without support from new investments, the company will be forced to sell off less liquid assets at possibly unfavorable prices (fire sale) or default default and face bankruptcy. bankruptcy. In order to grasp the severi severity ty of the situation, situation, I needed to find out whether whether or not this was a normal normal position to have in the industry industryto to be addressed in the “Comcast Vs. The Competition” section. Evaluati Eval uation on Of Comcast Comcast’s ’s Four Four Basic Basic Financia Financiall Stateme Statements ntsThe The Stateme Statement nt Of  Changes In Stockholders’ Equity

The statement of changes in stockholder’s equity summarizes the net transactions that occurred over the period that affected affected stockholder equity. Although covered last, this was the first statement I examined in order to find out how shareholder’s value had changed, what were the causes of those changes, and what my share of it would be as a common shareholder. Listed below are those items items that would need to be reclassified for  valuation purposes. -Equity available to common would need to be reduced by the minority interest. -The company did not have any issued or outstanding preferred stock holders.

 

-From the dividends declared, the amount unpaid at year end would need to be added back to shareholder equity. -Thee company -Th company uses uses grant grant date date account accounting ing for it itss share share based based compens compensati ation on expense and employee employee stock option. Deferred compensation for the share based compensation should be reclassified as a liability and the actual losses on the employee stock plan made be over or understated. -The 3.3 billion shares authorized to be repurchased could have an effect on future shareholder equity if purchased in efficient market conditions. -Hidde -Hi dden n dirty dirty surplu surpluss account accounting ing it items ems report reported ed in the Other Other Accumu Accumulat lated ed Income Statementunrealized and translation gains and losses. Ratio & Other Analysis In addition to the information noted above, I evaluated Comcast using a number  of financial ratios and calculations---listed below are those which I found to be most beneficial to my evaluation process. Values are from from 2009. -Liquidity Measures Current Curre nt and Quick Ratios: Ratios: .44 & .34. Typically Typically an amount amount less then one could could indicate liquidity risk. Operating Cash Flow/Liabilities: 127%, low but also improving. Net Working Working Capital Capital Days: Days: -73. -73.

Althou Although gh negative negative it was showing showing yearly yearly

improvement. -Solvency Measures -Altman -Alt man Z Score: 1.3. A score below 1.8 generally generally means means the probabiliti probabilities es of  bankruptcy within the next one to two years is extremely high.

 

-LT and Total Debt to Equity Ratios:.65 and 1.62. This means the firm has low financial leverage, more assets were financed with equity then debt, less risk of  default but a higher initial borrowing cost (no tax benefit). -Profitability

-ROA & ROCE excluding nonrecurring items: 16.7 & 8.7. Both figures have shown steady improvement. -P/E and P/B: 13.28 and 1 to 1. Both ratios have dropped since 2005. Comcast vs. The Competition

For this section, I reviewed the statistics from Tables 2-6 which are provided in the Appendix Appendix..

This This informat information ion was provided provided by Yahoo! Finance Finance (Ref. (Ref. 3) using

informati infor mation on available from December December 2010. Comcast Comcast ranked relatively relatively low against the industry indust ry leaders. leaders. However, However, many of these leaders leaders were competing in entirely entirely different custo cus tome merr mark market etss (BSY (BSY.. L a Brit Britis ish h Comp Compan any) y),, and so were were not not as reli reliab able le fo for  r  benchma benc hmarki rking ng purposes. purposes.

The company company did rank fairly fairly high in terms of market market

capital capi taliza izati tion on when when ranked ranked against against the top cable cable and televisi television on compan companies ies..

Market Market

capitalization is equal to the number of shares the firm has outstanding times its market value. This statisti statisticc is useful useful in determining determining a company’s company’s relative relative size in the market. market. Currently Comcast still still ranks highest against against other US competitors. competitors. The company does beat its direct competitors in terms of sales and profit margins, but it scores the lowest in terms of EPS and quarterly quarterly revenue revenue growth. The company’s company’s P/E, ROA and ROE ratios also rank fairly low when when compared against the industry and dir direct ect competitors. To test my liquidity concerns I reviewed the current ratio, operating cash flow and leveraged cash flow ratios from from the tables. Comcast had the lowest current ratio and had the least

 

percentage of funds left over from operating cash flow after debt payments (leveraged free cash flow)this only seemed to indicate further that Comcast was facing high liquidity risk. Comcast: Investment Opportunity or Liability Risk 

Upon completing my analysis, I still had some uncertainty as to a definitive invest inv estmen mentt str strate ategy. gy.

As a final final check I ran through through a simpli simplifie fied d residu residual al income income

valuation analysis. For sales revenue, I assumed growth would continue continue to show decline at an increasing increasing rate from forward forward years 1-5, 1-5, with no long run growth expected. expected. Due to future fut ure suppli supplier er rate rate increa increases ses,, I assume assumed d operati operating ng expens expenses es would would increa increase se at an increasing rate yearly. yearly. I used the percentage of revenues from 2009 for all all other income statement line items except tax, which I calculated based on the average reflected in years 2005-09.. Based on my valuation, 2005-09 valuation, Comcas Comcastt should be trading trading at a price of $21.93 per  share. At the end of 2009 Comcast was trading at $16.86 per share. Currently the the stock  market price is $20.60 per share. Had this analysis occurred at the end of 2009, I would have recommended a buy strategy or a hold for those currently invested. invested. At this time, time, I would woul d recomm recommend end holdin holding g off on making making any additi additional onal invest investmen ments ts at the curren currentt market price. For current investors, I would still recommend a hold strategy. Overall, I would recommend paying very close close attention to US economic decisions. The company has a beta of 1.2 (Yahoo!); which means that changes in the firm’s financial performance will tend tend to mirror mirror those those seen in the US US market. market.

This mirrore mirrored d effect was was made even

more evident by the volatility in Comcast’s financial performance over that the last 5 years.. As a final piece years piece of advice, I would would advise lenders lenders and creditor creditor to be weary of  increasing increa sing their lines lines of credit with Comcast. Comcast. The firm might begin begin running into cash

 

flow shortages in the near future (forecast and valuation shown in the Supplemental Information section). Recommendations For Improving Comcast’s Financial Performance

-Increase cash flow management. -Cable sales growth is going to continue to decline and profit percentages are going down due to rate increases. In order to increase increase operating profitability, profitability, the company must fi find nd new investment opportunities with value added return. In addition, look for investments with less supplier power so that you can better manager your expense and profit margins for those operations. -Increase investment in intellectual assets to create new products and service lines and, more importantly, to stay ahead of the competition. co mpetition. -Expand into new markets outside of the United States to add some protection against unfavorable US economic movements.

 

Appendix Table 1: S.W.O.T. Analysis

Strengths -The firm is a leader in the U.S. cable services industry.

Weaknesses -Suppliers are highly concentrated, substitute products are limitedstrong

-The company serves more areas and has more customers than any other cable service provider in the US.

pricing and overall market power  -The licensing fees charged by programming networks are singlehandedly the largest operating expense for Comcast.

-Able to enjoy both economies of scale and scope.

-Able to cross-sell multiple products within their customer base.

-Similarly, video programming expenses related to retransmission fees also represent a large chunk of Comcast’s total operating ex enses. . -Very long wait times to even reach a representative.-Reputation as one of the worst in customer satisfaction (esp. in service)Ranked # 1 twice in 04 & 07 by The American Customer Satisfaction Index.

-S -Str tron ong g brand brand name name reco recogni gniti tion on

-Division integration, open communication, and an entrepreneurial spirit within the firm.

-F -Fru rust stra rati tion on once once repr repres esen enta tati tive vess we were re reached because they were poorly trained, unprofessional, and rude to the point of  abusive in some cases. -Numerous customer fee rate increases. Relatively low switching fees and short contract periods

-Able to generate a lot of new/improved programming innovations and get them to market quickly (high Idea/Product

-No significant investments in customer  markets outside of the US-at risk for  market fluctuations.

Turnover). Op portunities -The firm’s expansive operations allow them to develop new product lines in multiple categories.

Threats -Rates charged for both video programming and licensing fees are expected to go up in the future.

-The joint venture with GE that was finalized at the end of December 2009 can significantly increase Comcast’s revenue potential.

-This would likely force the company to pass some of this increase along to the customer, via higher service fees.

-The combined assets and skills of the two companies will give Comcast an even stronger competitive advantage in the

-Higher fees will strengthen their already poor customer satisfaction reputation and negatively impact their customer base.

entertainment and media industry.

 

-The company will be able to service a wider ranges of their current customer  needs, while opening themselves up to entirely new customer markets

-The company’s main industry, cable/TV/video industry is highly competitive and intensifying. Harder to to gain salesclosing in on market potential.

-The number of citizens in the U.S who have regular internet access continues to

-The co. faces equally tough competition as it moves farther into the

increase, as does the time the average American citizen spends on the internet.

telecommunications industry. Additionally, the struggle to gain market share & brand recognition is going up as the fight for advertising space increases.

-This will enable the company to offer  services such as 4G high speed internet, to a much broader area.

-The industry is highly regulated at the state, federal and even local levelsfuture regulations pose a serious risk to Comcast’s future operating performance.

-As access and usage increases, Comcast can create highly customized consumer  offeringswith greater profit margins.

-Services demanding customers, in a highly technologically dependent industryone new competitor innovation could quickly wipe Comcast out of an entire costumer  segment (i.e. visibly better programming or  fasterr interne faste internett s eeds .

 

Table 2: Comcast VS. The Industry

Table 3: Comcast VS Individual Competitors

 

Table 4: Direct TV Financial Ratios-P/B 50.24

Table 5: Dish Network Financial Ratios-P/B NA

 

Table 6: Comcast’s Financial Ratios-P/B 1.31

References

 

Ref.1: http://www.comcast.com/corporate/about/pressroom/corporateoverview/comcasttimeline/ comcasttimeline.html#1963 Ref. 2: http://en.wikipedia.org/wiki/Comcast#Financial_performance Ref. 3: http://finance.yahoo.com/q/co?s=CMCSA+Competitors Ref. 4: http://www.cxoadvisory.com/equity-premium/the-2010-equity-risk-premiumfrom-academia/

--estimate for market risk premium

Supplemental Information

 

Comcast Income Statement Forecast

Residual Income Valuation: My Required Rate of Return: 1.5 R.F.R + 6% M.R.P. In testing out various rates of return, Valuation Per Share = 2009 CMP at 8.1%

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