Comcast (CMCSA) stock price has crawled back in the past few months, helped by the ongoing US equities rally. It has rebounded by 17% from its lowest level this year and is hovering near its highest point since March 28, bringing its market cap to over $162 billion.
Comcast is going through major issues
Comcast is one of the biggest companies in the United States. It operates its business through two major segments: connectivity and platforms and content & experiences.
In its connectivity business, the company offers internet solutions to customers, including businesses and households.
The content and experiences business is made up of its media business, which includes popular brands like Sky, NBCUniversal, Peacock, and NBC and Telemundo.
It is the parent company of popular television brands like USA Network, E!, MSNBC, CNBC, and Golf Channel.
Therefore, these two segments have some major headwinds. The connectivity business is expensive to run and is growing at a slower pace. Besides, many households and businesses already have their service providers.
At the same time, competition, especially from Elon Musk’s Starlink is rising. As of August this year, Starlink has over 1.4 million subscribers in the United States, a figure that is continuing to grow.
Meanwhile, the media business is going through major challenges as advertising spending has slowed, and cord cutting has increased. Peacock, its streaming service has continued to make losses, while its market share has dwindled.
It has 33 million paid subscribers, a figure that is substantially smaller than other popular companies like Netflix, Disney+, and MAX. Analysts believe that its business will remain under pressure in the longer term.
Additionally, its theme parks are not doing well as attendance dips. Its EBITDA dropped by 10.6% in Q2. Also, its Studios segment’s revenue slipped by 27%.
As a result, Comcast’s business has grown gradually in the past few years. It had an annual revenue of $108 billion in 2019 and $103 billion in 2020. Its revenue then stalled at $121 billion in the last two financial years.
Read more: Comcast’s Michael Cavanagh: ‘Each one of our businesses is making money’
Comcast earnings ahead
The next important catalyst for the Comcast stock price will come out on Thursday when it publishes its quarterly financial results.
The most recent financial results showed that Comcast’s revenue dropped by 2.7% in the second quarter to $29.6 billion.
Comcast’s profits also eased slightly during the quarter, with its net income falling by 7.5% to $3.9 billion. Its adjusted EBITDA fell by 0.7% to $10.1 billion.
Analysts expect Comcast earnings to show that its third-quarter revenue remained at $31.6 billion. They also expect the company to predict that its fourth-quarter revenue will be $31.52 billion.
Comcast also expects that its annual revenue will be $122.9 billion, followed by $122.4 billion in the next financial year, meaning that its growth has largely stalled.
To be fair: investors don’t allocate funds to companies like Comcast for their growth, which they don’t have. Instead, they invest in the company because of its stability and regular dividends.
Comcast has a forward dividend yield of 2.96% and a payout ratio of 28.78%, meaning that it has room to grow its payouts in the future.
Comcast is a cheap company
Comcast’s recent performance has left behind a company that is relatively undervalued compared to the broader market and its peers.
Data compiled by SeekingAlpha shows that Comcast has a forward price-to-earnings ratio of 11.1, much lower than the industry median of 19.28. Its non-GAAP forward P/E ratio stands at 9.95, lower than the median of 13.5. These numbers are also much lower than its five-year averages.
Additionally, a discounted free cash flow calculation by Simply Wall Street shows that the company trades at a 51% discount to its fair value. Its current stock price is also a few points lower than the average estimate of $46.54.
Some of the most notable bullish analysts are from banks like Scotiabank, Barclays, Macquarie, and Deutsche Bank.
Comcast stock analysis
Comcast chart by TradingView
The daily chart shows that the CMCSA share price has crawled back in the past few months. After bottoming at $35.83 on April 26, it has rebounded to over $40.
In this period, the stock has moved slightly higher than the lower side of the Andrew’s pitchfork tool.
The stock has also rallied above the 23.6% Fibonacci Retracement point and the key resistance level at $41.31, its highest level on June 31st.
Most importantly, it has formed the golden cross pattern recently as the 50-day and 200-day Exponential Moving Averages (EMA) crossed each other.
The Relative Strength Index (RSI) and the MACD indicators have also pointed upwards. Therefore, the stock will likely continue rising as bulls target the key resistance level at $45.81, its highest point in August 2023.
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