When all else fails, buy shares back. Having seen its shares fall 20% over the past year, Cable giant Comcast (symbol CMCSA) says it will do just that, announcing plans to buy back $5 billion worth of its stock. If Comcast follows through with the deal, it is "a major positive step" for the nation's largest cable TV operator, says Morgan Stanley analyst Richard Bilotti.
The buyback puts the Philadelphia-based company on equal footing with Time Warner and Viacom, which have launched repurchase programs of their own over the past two years. "We believe that the share repurchases should help Comcast narrow the gap between recent trading levels and its intrinsic value," says Bilotti.
Comcast comes off a tough fourth quarter. Costs from hurricane damage and a higher tax bill battered earnings, which fell 69% from the fourth quarter of 2004. Despite the decline, the company's high-speed Internet business grew and its phone business was steady.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Competition to send you a monthly bill for phone, Internet and cable television is fierce. Phone companies, such as Verizon and ATT (formerly SBC Communications), are launching TV service. Satellite television providers, such as DirecTV and Echostar, continue to nibble at cable's audience. To keep predators at bay, Comcast plans this year to offer packages of cable, Internet and phone service that give customers a discount if they buy the whole bundle.
Putting a fair price on cable companies is never an easy task. They spend a lot to build their networks, carry huge debt loads and generate large depreciation expenses. Instead of earnings, analysts tend to base their value estimates of cable operators on free cash flow -- what's left after the building and equipment expenses are paid. Bilotti expects about $2.5 billion in free cash flow in 2006 from Comcast, but he predicts that the rollout of bundled packages and other enhancements will limit cash-flow growth through 2007.
Although Bilotti has an "equal-weight," or neutral, rating on Comcast, his 12-month target price of $35 represents a significant potential gain from the stock's recent price of $27.
--Thomas Anderson
-
4 Money Habits Boomers Swore By That Millennials Are Walking Away FromMillennials are trading tradition for flexibility when it comes to building wealth.
-
Abu Dhabi Adventures: New Thrills, Iconic Sights and Disney’s Latest ParkDiscover the mix of culture, wildlife and modern marvels that make this Middle Eastern city a destination to watch.
-
What Tariffs Mean for Your Sector ExposureNew, higher and changing tariffs will ripple through the economy and into share prices for many quarters to come.
-
How to Invest for a Fall Interest Rate Cut by the FedA lot can happen between now and then, but the probability the Fed cuts interest rates in September is back above 80%.
-
Are Buffett and Berkshire About to Bail on Kraft Heinz Stock?Warren Buffett and Berkshire Hathaway own a lot of Kraft Heinz stock, so what happens when they decide to sell KHC?
-
How the Stock Market Performed in the First 6 Months of Trump's Second TermSix months after President Donald Trump's inauguration, take a look at how the stock market has performed.
-
If You'd Put $1,000 Into Berkshire Hathaway Stock 20 Years Ago, Here's What You'd Have TodayBerkshire Hathaway is a long-time market beater, but the easy money in BRK.B has already been made.
-
If You'd Put $1,000 Into Procter & Gamble Stock 20 Years Ago, Here's What You'd Have TodayProcter & Gamble stock is a dependable dividend grower, but a disappointing long-term holding.
-
My Three-Day Rule for Investing: And If it Applies NowStock Market I've seen a lot in my career. Here's what I see now in the stock market.
-
Is It Time to Invest in Europe?Stock Market Europe is being shaken out of its lethargy, militarily and otherwise, by Donald Trump's changes in U.S. policy. Should investors start buying?
