A stock to watch
Comcast Corporation (NASDAQ:CMCSA) is yet another multimedia-content provider. Although lately the firm’s earnings have been flat in relation to consensus estimates, year-over-year growth was in fact strong, making the company deserve a closer look. While many analysts are concerned about the fundamentals and valuation of the Class A Stock for Comcast Corporation (NASDAQ:CMCSA), I would recommend paying further attention to its Special Class A stock, which actually stands as a buy in my view. Trading at 17.3 times earnings, it is cheaper than the Class A shares and exchanges below the industry’s 23.3 price-to-earnings average (Morningstar), thus providing an attractive entry point for investors. Analyst consensus expects 18% growth per year over the upcoming five, which stands 8% ahead of the industry average and almost doubles that projected figures for S&P500 companies.
Additional reasons to believe that Comcast Corporation (NASDAQ:CMCSA) will deliver above average long-term growth:
- Its (unmatched) multiple product offerings, which create plenty of growth opportunities, as most of its customers subscribe to more than one of the firm´s services. This generates not only high customer loyalty, but also higher cash flow levels per user.
- Its scale; like Netflix, Inc. (NASDAQ:NFLX), Comcast Corporation (NASDAQ:CMCSA) serves about 25% of pay-TV households in the U.S.
- The acquisition of NBC Universal further widens its product portfolio by adding original productions, sports, and even theme parks.
- The offering of several innovative products, including the firm’s set-top box, Xfinity TV – an on-demand service that provides access to both video programming and Internet – and its X1 services, among others. These should boost earnings in the upcoming quarters.
- Strategic partnerships with major companies like Microsoft and Skype should further increase Comcast Corporation (NASDAQ:CMCSA)’s market share, which has already been growing on the back of an increased focus on both residential and small and medium business (SMB) clients. This last segment in particular offers plenty of development opportunities; given the firm’s low penetration, the SMB segment is expected to offer $20 to $30 billion in profit upside.
A stock with strong recognition
Finally there’s TiVo Inc. (NASDAQ:TIVO), known for offering the first commercially available digital video recorder. Before video streaming exploded, TiVo Inc. (NASDAQ:TIVO) offered a unique product, but with the advance of technology, is this company still poised to grow? I’d say it is. I’d say,
buy
. Here are the reasons that lead me to believe the firm will outperform its peers in the long-run:
- In the U.S., TiVo Inc. (NASDAQ:TIVO) has been a synonym for digital recording of TV for quite some time now. Its strong brand recognition provides it with a considerable advantage to benefit from the growing demand in digital video recording devices, already present in about half of the country’s households.
- Although the new subscription rates are bound to decelerate over the upcoming years in the U.S., several partnerships offer plenty of growth opportunities for TiVo Inc. (NASDAQ:TIVO) in international markets. Some of the main alliances include companies like Comcast Corporation (NASDAQ:CMCSA), Conax, Technicolor, Gemstar, Com Hem (Sweden), Cablevision (Mexico), Seven Network Limited (Australia), ONO (Spain), Virgin Media (U.K.) and Canal Digital (Scandinavia).
- Several legal settlements concerning patent rights have relieved some pressure from TiVo Inc. (NASDAQ:TIVO), permitting it to freely use the technology, while providing new and recurring revenue sources.
The company is estimated to earn significant licensing revenues from settlements with DISH & EchoStar ($500 million over calendar years 2012-2017), AT&T ($215 million through 2018) and Verizon ($100 million upfront and $150.4 million through 2018).
Further litigations with Motorola and Cisco could result in another $8-to-$15-per-share gains.(Zacks) - Analyst consensus projects an outstanding growth rate for the company over the next five years. Calculations indicate 35.6% expected annual growth, compared to the 16.64% industry average.
Bottom line
As home entertainment options multiply, some companies lead the bunch offering unique products in a highly competitive arena. Although all three of the above-described companies offer plenty of upside for the long term, opinions about the shorter term are divided. While some would believe that Netflix, Inc. (NASDAQ:NFLX) is currently the strongest option, I would go for Comcast Corporation (NASDAQ:CMCSA), which combines very attractive long- and short-term prospects.
The article 3 Well-Positioned Stocks in the Entertainment Sector originally appeared on Fool.com and is written by Victor Selva.
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