Is Comcast A Good Portfolio Play?

With shares of Comcast (NASDAQ:CMCSA) trading around $49, is CMCSA an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Comcast is a provider of entertainment, information, and communications products and services. The company operates in five segments: cable communications, cable networks, broadcast television, filmed entertainment, and theme parks. Comcast offers television, video, high-speed Internet, and voice services to residential and business customers. It also operates NBC and Telemundo broadcast networks; provides filmed entertainment under the Universal Pictures, Focus Features, and Illumination names; and operates theme parks, studios, and a dining, retail, and entertainment complex.

Television is changing and adapting to accommodate consumers’ desire for binge-watching and on demand television shows. As a result, Comcast is changing commercials to adapt alongside television’s evolution, according to Reuters. As the largest cable provider in the U.S., Comcast is understandably anxious to keep advertising relevant in television. It’s newest attempt to do so has older television episodes being edited to include new ads. This could aid shows in obtaining revenue from advertisement. Past season are often available commercial free from services such as Comcast-owned Hulu and major online streamer Netflix (NASDAQ:NFLX). Still, for seasons coming out with new episodes, most are only available via cable boxes, iTunes, and network websites. There are less commercial free options for the more recent seasons.

T = Technicals on the Stock Chart are Strong

Comcast stock has been trending higher over the past few quarters. The stock is currently trading near highs for the year and looks poised to continue. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Comcast is trading above its rising key averages which signal neutral to bullish price action in the near-term.

CMCSA

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Comcast options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Comcast options

23.85%

66%

64%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

December Options

Flat

Average

January Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Comcast’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Comcast look like and more importantly, how did the markets like these numbers?

2013 Q3

2013 Q2

2013 Q1

2012 Q4

Earnings Growth (Y-O-Y)

-16.67%

30.00%

20.00%

20.09%

Revenue Growth (Y-O-Y)

-2.38%

6.96%

2.90%

5.95%

Earnings Reaction

-1.29%

5.54%

1.35%

0.85%

Comcast has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have been pleased with Comcast’s recent earnings announcements.

P = Weak Relative Performance Versus Peers and Sector

How has Comcast stock done relative to its peers, Time Warner Cable (NYSE:TWC), DirecTV (NASDAQ:DTV), Dish Network (NASDAQ:DISH), and sector?

Comcast

Time Warner Cable

DirecTV

Dish Network

Sector

Year-to-Date Return

31.96%

34.79%

33.15%

50.77%

38.66%

Comcast has been a poor relative performer, year-to-date.

Conclusion

Comcast provides communications and entertainment products and services to consumers and companies. The company is changing commercials to adapt alongside television’s evolution. The stock has been trending higher over the past few quarters and is currently trading near highs for the year. Over the last four quarters, earnings and revenues have been increasing, which has left investors pleased about recent earnings announcements. Relative to its peers and sector, Comcast has been a weak year-to-date performer. Look for Comcast to OUTPERFORM.

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