Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Most Undervalued Companies for the Defensive Investor – December 2014. By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Comcast Corporation (CMCSA) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): Comcast Corporation is a media and technology company with two primary businesses, Comcast Cable and NBCUniversal. The Company’s segments include Cable Communications, Cable Networks, Broadcast Television, Filmed Entertainment, and Theme Parks. Cable communications consists of the operations of Comcast Cable, which is a provider of video, Internet and voice services (cable services) to residential customers under the XFINITY brand, and it also provides similar services to businesses and sells advertising. Cable networks consists of its national cable networks, its regional sports and news networks, its international cable networks, and its cable television production operations. Broadcast television consists of the NBC and Telemundo broadcast networks. Filmed entertainment consists of the studio operations of Universal Pictures, which produces, acquires, markets and distributes filmed entertainment. Theme parks consist of its Universal theme parks in Orlando and Hollywood.
Defensive Investor – must pass at least 6 of the following 7 tests: Score = 3/7
- Adequate Size of Enterprise – market capitalization of at least $2 billion -Â PASS
- Sufficiently Strong Financial Condition – current ratio greater than 2 -Â FAIL
- Earnings Stability – positive earnings per share for at least 10 straight years -Â PASS
- Dividend Record – has paid a dividend for at least 10 straight years -Â FAIL
- Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period -Â PASS
- Moderate PEmg ratio – PEmg is less than 20 -Â FAIL
- Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 -Â FAIL
Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5
- Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 -Â FAIL
- Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 -Â FAIL
- Earnings Stability – positive earnings per share for at least 5 years -Â PASS
- Dividend Record – currently pays a dividend -Â PASS
- Earnings growth – EPSmg greater than 5 years ago -Â PASS
Valuation Summary
Key Data:
| Recent Price | $56.31 |
| MG Value | $92.71 |
| MG Opinion | Undervalued |
| Value Based on 3% Growth | $34.92 |
| Value Based on 0% Growth | $20.47 |
| Market Implied Growth Rate | 7.44% |
| NCAV | -$35.17 |
| PEmg | 23.38 |
| Current Ratio | 0.82 |
| PB Ratio | 2.76 |
Balance Sheet – September 2014
| Current Assets | $13,936,000,000 |
| Current Liabilities | $17,084,000,000 |
| Total Debt | $44,827,000,000 |
| Total Assets | $159,237,000,000 |
| Intangible Assets | $103,776,000,000 |
| Total Liabilities | $105,939,000,000 |
| Outstanding Shares | 2,616,000,000 |
Earnings Per Share
| 2014 (estimate) | $2.95 |
| 2013 | $2.56 |
| 2012 | $2.28 |
| 2011 | $1.50 |
| 2010 | $1.29 |
| 2009 | $1.26 |
| 2008 | $0.86 |
| 2007 | $0.83 |
| 2006 | $0.79 |
| 2005 | $0.19 |
| 2004 | $0.29 |
Earnings Per Share – ModernGraham
| 2014 (estimate) | $2.41 |
| 2013 | $2.02 |
| 2012 | $1.64 |
| 2011 | $1.27 |
| 2010 | $1.10 |
| 2009 | $0.93 |
Dividend History
Conclusion:
Comcast Corporation is not suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned with the low current ratio, short dividend history, and the high PEmg and PB ratios.  The Enterprising Investor is concerned with the level of debt relative to the current assets.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities.  As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.10 in 2010 to an estimated $2.41 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 7.44% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.
Be sure to check out previous ModernGraham valuations of Comcast Corporation (CMCSA) for greater perspective!
The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Comcast Corporation (CMCSA)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.
Disclaimer:  The author did not hold a position in Comcast Corporation (CMCSA) at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.
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