According to our database of 13F filings by hedge funds and other notable investors, 40 hedge funds had positions in Comcast Corporation (NASDAQ:CMCSA) at the end of June, unchanged from the beginning of the second quarter. As the owner of NBC Universal following its acquisition from General Electric Company (NYSE:GE) in early 2011, Comcast has substantial film, theme park, and cable and broadcast television assets in addition to its cable business. The company’s stock is up 54% over the last year, easily outperforming the broader market, as investors trust that its business is stable enough to prosper even if consumer spending stagnates or declines in the near future.
Sure enough, Comcast Corporation’s second quarter went well even as commentators worried about low growth. Revenue was up 6% compared to the second quarter of 2011, and net income was up 19% as the company was able to produce a substantial increase in margins as well. A decline in operating income at NBC, which was primarily driven by higher costs in film entertainment, was offset by gains in cable. Of the company’s cash flow from operations in the first half of 2012- $7.8 billion- about a third was spent on capital expenditures while Comcast also paid down $1.7 billion in debt, repurchased $1.5 billion in common stock, and paid about $740 million in dividends (the company’s dividend yield currently stands at 1.8%). We’re impressed that Comcast Corporation can grow its earnings while buying back so much of its stock (compare the buybacks to its market cap of $94 billion), and would expect that it should continue to grow EPS through both of these channels.
The market is bullish on Comcast’s future prospects, as the trailing P/E comes in at 22. The Street’s consensus is for EPS growth of 15% for 2013 compared to 2012, which would represent moderate earnings growth compared to what the company has done recently if repurchases continue at a similar rate. The forward P/E based on these estimates is 16. Looking out further, the five-year PEG ratio is 1, so the stock is about fairly valued if sell-side projections are correct.
We’ve already mentioned Comcast’s popularity among hedge funds. Adage Capital Management, which is run by former Harvard Management investors Phil Gross and Robert Atchinson, increased its position 22% between April and June to finish the second quarter with 5.6 million shares in the portfolio. See more stock picks from Adage Capital Management. Boykin Curry IV’s Eagle Capital Management had over half a billion dollars in its position at the end of June, reporting a position of 17.5 million shares (research more large positions owned by Eagle Capital Management). Renaissance Technologies, founded by billionaire Jim Simons, initiated a position in Comcast during the second quarter (find more new positions from Renaissance Technologies).
Comcast’s peers can be represented with DIRECTV (NASDAQ:DTV), DISH Network Corp. (NASDAQ:DISH), and ABC owner The Walt Disney Company (NYSE:DIS). DirecTV and Dish are smaller than Comcast in terms of market cap, but trade at cheaper multiples in the market: DirecTV trades at 14 times trailing earnings while Dish’s trailing P/E is 12. The companies do lag Comcast in terms of their recent business performance, however. Dish saw its earnings fall 33% last quarter compared to the same period last year, while DirecTV’s edged up only 1%. Both of their stock prices are about even with the market over the last year. We’re tempted to recommend DirecTV based on its lower valuation (including a forward P/E of 10 and a five-year PEG ratio of 0.8) between these three. Disney, whose stock has soared 61% over the last year, also trades at lower multiples: 17 times trailing earnings and 15 times forward earnings estimates. It grew its revenue by 4% last quarter versus a year earlier, and higher margins drove earnings up 24%. We would consider buying a combination of Disney and DirecTV as a substitute for Comcast.