Comcast (NYSE: CMCSA) faces multiple issues

When Comcast (NYSE: CMCSA) released its latest earnings report Jan. 30, CEO Brian Roberts sounded ecstatic. 

“We had the best financial performance in our company’s 60-year history with record revenue, EBITDA and EPS along with significant free cash flow,” he said.

But traders and investors felt otherwise: they pushed the stock down 11% that day, though it has erased about half that loss since then. And they appear to have good reason.

Comcast’s woes

The company indeed has some major problems, which is why it has a negative return for its stock over the last one-, three-, and five-year periods. 

Comcast’s businesses include broadband service (the biggest in the country with 31.8 million subscribers); TV broadcast network NBC; cable channels CNBC, MSNBC and Bravo; Universal Pictures, Universal theme parks; European satellite TV operator Sky; and Peacock streaming service. 

It led the charge into providing cable and Internet services early in this century. 

However, Comcast’s revenue gained only 1.8% last year and free cash flow fell 3.2%. It has been losing broadband customers for years, as TV viewers cut the cord on their cable TV service and telecommunications carriers like AT&T and Verizon offer stiff competition for providing Internet service.

Comcast lost a net 139,000 customers in the fourth quarter, and analysts agree that the number will get worse before it gets better.

Meanwhile, many say Peacock is a poor competitor to Netflix and Disney, providing lackluster programing and lacking a coherent plan. Peacock has just 36 million customers compared to 300 million-plus for Netflix. 

“The effort to build the Peacock service to replace lost traditional TV revenue has developed slowly, creating uncertainty around the long-term prospects for the business,” wrote Morningstar analyst Michael Hodel.   

Comcast’s strengths

To be sure, Comcast’s cloud has a silver lining. Its amusement parks have strong potential, many experts say. These are “underappreciated assets” that produced $3 billion of EBITDA last year and could be worth more than $40 billion, says Andrew Bary of Barron’s. 

And the broadband service does throw off hefty cash, with domestic broadband revenue totaling $6.5 billion in the fourth quarter.

Comcast said in November that it will look at spinning off some of its cable networks this year, including USA Networks, CNBC, and MSNBC. That would narrow the company’s focus and rid it of some slow-growing assets. But it’s not clear that Comcast CEO and major shareholder Brian Roberts approves of the idea.

Rumors crop up from time to time that Comcast might merge with Warner Bros. or Charter Communications, the second largest US broadband provider. But Comcast has said it has no interest.

In any case, the stock has dropped to levels that may be undervalued. It trades at 8.3 times forward earnings, below Charter’s ratio of 9.5 and Comcast’s own five-year average of 11.8, according to Morningstar. The S&P 500 as a whole traded at 22.6 times forward earnings as of Feb. 21, according to Birinyi Associates.

So Comcast appears to be damaged, but perhaps it’s not permanently broken.

The author owns shares of Comcast.