Can Comcast’s Stock Rebound?

With shares of Comcast (NASDAQ:CMCSA) trading around $49, is CMCSA an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Comcast is a provider of entertainment, information, and communications products and services. The company operates in five segments: cable communications, cable networks, broadcast television, filmed entertainment, and theme parks. Comcast offers television, video, high-speed Internet, and voice services to residential and business customers. It also operates NBC and Telemundo broadcast networks; provides filmed entertainment under the Universal Pictures, Focus Features, and Illumination names; and operates theme parks, studios, and a dining, retail, and entertainment complex.

Comcast and Charter Communications (NASDAQ:CHTR) said on Thursday that cable veteran Michael Willner will run the cable company that will be spun off as part of a three-way deal that hinges on regulators approving Comcast’s $45 billion takeover of Time Warner Cable (NYSE:TWC). The yet-to-be-named company that was announced on April 28 will serve 2.5 million customers in states including Indiana, Michigan and Wisconsin. The company, which will have an equity value of $5.8 billion, will be two-thirds owned by Comcast shareholders and one-third owned by Charter. Willner, 62, had a long career at Insight Communications, a cable operator that was acquired by Time Warner Cable in 2011 for about $3 billion. No former Time Warner Cable or Insight cable subscribers will be part of the new company, however.

Comcast is awaiting approval by the U.S. Justice Department and the U.S. Federal Communications Commission to take over Time Warner Cable, a process that could take many months and affect the future of cable and broadband. The spinoff depends on that deal being approved, as well as a swap of 1.6 million subscribers. Charter will have a services agreement to help manage and provide technology to the company, which will pay a fee of about 4 percent of its revenue to Charter as part of the deal. Charter has to wait at least four years before it can gain ownership control of the company, however. Besides Charter Chief Executive Officer Tom Rutledge, who will serve on the company’s board as nonexecutive chairman, no other board members have been announced yet.

T = Technicals on the Stock Chart are Weak

Comcast stock has been trading sideways in recent times. The stock is currently pulling back and may need time to stabilize. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Comcast is trading between its rising key averages which signal neutral price action in the near-term.

CMCSA

Source: Thinkorswim

Taking a look at the implied volatility (red) and implied volatility skew levels of Comcast options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Comcast options

17.85%

36%

34%

What does this mean? This means that investors or traders are buying a minimal amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

June Options

Average

Average

July Options

Average

Average

As of today, there is an average demand from call and put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a minimal amount of call and put option contracts and are leaning neutral over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Comcast’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Comcast look like and more importantly, how did the markets like these numbers?

2014 Q1

2013 Q4

2013 Q3

2013 Q2

Earnings Growth (Y-O-Y)

31.48%

27.92%

-16.67%

30%

Revenue Growth (Y-O-Y)

13.70%

6.21%

-2.38%

6.96%

Earnings Reaction

1.90%

1.63%

-1.29%

5.54%

Comcast has seen rising earnings and revenue figures over the last four quarters. From these numbers, the markets have been pleased with Comcast’s recent earnings announcements.

P = Weak Relative Performance Versus Peers and Sector

How has Comcast stock done relative to its peers, Time Warner Cable (NYSE:TWC), DirecTV (NASDAQ:DTV), Dish Network (NASDAQ:DISH), and sector?

Comcast

Time Warner Cable

DirecTV

Dish Network

Sector

Year-to-Date Return

-4.84%

-0.87%

22.21%

2.45%

5.73%

Comcast has been a poor relative performer, year-to-date.

Conclusion

Comcast provides communications and entertainment products and services to consumers and companies. The company and Charter Communications said on Thursday that cable veteran Michael Willner will run the cable company that will be spun off as part of a three-way deal that hinges on regulators approving Comcast’s $45 billion takeover of Time Warner Cable. The stock has been trading sideways and is currently pulling back. Over the last four quarters, earnings and revenues have been on the rise, which has left investors pleased. Relative to its peers and sector, Comcast has been a poor year-to-date performer. WAIT AND SEE what Comcast does this quarter.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

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