Will Comcast Break Higher?

Comcast

With shares of Comcast (NASDAQ:CMCSA) trading around $42, is the stock 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. The company is able to reach and move large audiences through all of its outlets.

Comcast along with 21st Century Fox (NYSE:FOXA) and Disney (NYSE:DIS) are owners of Hulu, which is receiving bids from a number of companies. An agreement on the future direction of Hulu has not been reached. It is reported that AT&T (NYSE:T) has partnered with Chernin Group to make an offer for online TV streaming service. Other companies that reportedly made offers include DirecTV (NASDAQ:DTV) and Yahoo (NASDAQ:YHOO). As a multimedia giant, look for Comcast to provide and retain the products and services that consumers and companies love.

T = Technicals on the Stock Chart are Strong

Comcast stock has been part of an explosive move higher over the past few years. The stock has been consolidating for most of this year, so it may still need more time. Analyzing the price trend and its strength can be done using key simple moving averages: 50-day (pink), 100-day (blue), and 200-day (yellow). As seen in the daily price chart below, Comcast is trading slightly above its rising key averages, which signal neutral to bullish price action in the near term.

CMCSA

(Source: Thinkorswim)

Taking a look at the implied volatility 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

24.48%

70%

68%

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

Put IV Skew

Call IV Skew

July Options

Flat

Average

August Options

Flat

Average

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

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 year-over-year revenue growth figures for Comcast look like and more importantly, how did the markets like these numbers?

2013 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

20.00%

20.09%

136.40%

35.14%

Revenue Growth (Y-O-Y)

2.90%

5.95%

15.38%

6.13%

Earnings Reaction

1.35%

0.85%

3.30%

3.07%

Comcast has seen increasing earnings and revenue figures over the past 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

13.38%

15.03%

26.51%

17.46%

17.15%

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

Conclusion

Comcast provides communications and entertainment products and services to consumers and companies. The stock has been part of an explosive move toward higher prices, but it is now consolidating and may need a little more time before it gets going. Over the past four quarters, earnings and revenue figures have been on the rise, which has really pleased investors in the company. Relative to its peers and sector, Comcast has been a weak year-to-date performer. Look for Comcast to OUTPERFORM.

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