The cable companies are getting hit today after President Obama released a statement calling for net neutrality. This Bloomberg article outlined the situation, with the following key excerpt:
Obama asked for no blocking of websites, no slowing of Internet content, and no deals that let companies pay for faster delivery of their content. His appointee to the Federal Communications Commission, Tom Wheeler, has been considering a plan that allows the possibility of so-called fast lanes.
Vox has a more detailed explanation here. A Cable and internet service providers have lobbied hard for the idea of fast lanes and preferential service. They are likely to mount legal challenges if the FCC does not allow for such preferential service.
In the meantime, the stocks are getting hit. Comcast has been front and center in this fight, and it is the largest U.S. cable company, with a market cap of $138 billion. The stock is down around 3% today, and is unchanged since January:
CMCSA has consolidated between $48 and $58 throughout 2014. However, EPS has grown around 20% year-over-year on sales growth of about 6%, leading to a contraction in CMCSA’s P/E multiple to around 19x, vs. 22x at the start of 2014. Given that expected EPS growth over the next 2 years is around 10-15%, CMCSA looks more attractively valued than the majority of mega cap stocks in the U.S.
That consistent fundamental performance is one reason why CMCSA has remained in such a consistent long-term uptrend over the past 5 years:
The $50-$52 area is clearly important support, and might be a good spot for a long entry in CMCSA.
The real question going forward is whether CMCSA can maintain its consistent sales and EPS growth. While today’s reaction is an indication of concern about the impact of net neutrality on Comcast’s future business results, let’s keep in mind that CMCSA is already in a monopoly-type position in many of its markets, and has used bolt-on acquisitions and larger network effects to maintain sales and profit growth in the recent past. That is unlikely to change with today’s ruling. Couple those advantages with a more attractive valuation, and CMCSA could be setting up for a breakout to new all-time highs to start 2015. We’ll keep an eye on it and might pull the trigger on an options trade on a retest of the $50-$52 area.