Will Comcast Benefit from a Possible Addition?

With shares of Comcast (NASDAQ:CMCSA) trading around $46, 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 Time Warner Cable (NYSE:TWC), among others, are reportedly in negations with Netflix (NASDAQ:NFLX) to provide its service as a part of pay-TV packages and allow pay-TV providers to include Netflix as an app on their set-top boxes. According to people familiar with the matter who spoke to the Wall Street Journal, talks are in early stages and could still break down. Netflix cut a similar deal with the U.K.’s Virgin Media recently, but pay-TV and Netflix are still enemies in many ways, although they are apparently willing to explore partnerships.

T = Technicals on the Stock Chart Are Strong

Comcast stock has been surging higher over the last several years. The stock is currently trading near highs for the year and looks set to continue. 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 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 (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

25.95%

83%

81%

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

Put IV Skew

Call IV Skew

October Options

Flat

Average

November 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 very significant amount of call and put option contracts and are leaning neutral to bullish 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?

2013 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

30.00%

20.00%

20.09%

136.40%

Revenue Growth (Y-O-Y)

6.96%

2.90%

5.95%

15.38%

Earnings Reaction

5.54%

1.35%

0.85%

3.30%

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

P = Excellent 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

24.28%

18.73%

21.31%

31.02%

22.53%

Comcast has been a relative performance leader, year-to-date.

Conclusion

Comcast provides communications and entertainment products and services to consumers and companies. Netflix is reportedly in talks with Comcast, among other pay-TV providers, to bring its services to the cable TV giant. The stock has been surging higher in recent years and is currently trading near all time high prices. Over the last four quarters, earnings and revenues have been increasing which has left investors pleased about recent earnings announcements. Relative to its peers and sector, Comcast has been a year-to-date performance leader. Look for Comcast to OUTPERFORM.

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