(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Comcast Corp.’s (CMCSA) stock has fallen by 18% from its January highs when the shares were trading at a price of around $44. At least some options traders see the stock rising by about 8% by the middle of November from its current price of almost $35.50.
The stock had been rising since early May, recouping some of the losses from earlier this year. But the stock tumbled after winning the bid to buy Sky Plc. for $40 billion beating out rival Twenty-First Century Fox Inc (FOX). But it isn’t just the acquisitions of Sky and the piles of debt to worry about for Comcast. The company is facing a significant slowdown in its earnings and revenue growth next year. (For more, see also: Comcast Formalizes $30.7 Billion Bid for Sky.)
An 8% Gain
Over the short term, some options traders are betting Comcast will rise over the next few weeks with the stock climbing to almost $38. The bets that the stock will rise outweigh the bets that the stock will fall by about 6 to 1 at the $37.5 strike price. Those calls are a bullish bet for expiration on November 16, and have about 42,000 open contracts. A buyer of those calls would need the stock price to rise to at least $37.90 to earn a profit.
Earnings Growth Slows
A short-term bounce may be all that investors get in Comcast for now. That is because the earnings and revenue outlook does not look strong. In fact, over the past three months, analysts have slashed their earnings outlook by 3% for the upcoming third quarter.
The full-year results for 2018 look strong with expectations for earnings growth of almost 23%. But that slips away in 2019, dropping to just 10%. Revenue forecasts for 2019 are even worse and are forecast to fall to 2.2% in 2019 from 5.7% in 2018.
The stock may continue to languish until the acquisition is complete and investors can get a sense of clarity into what Comcast’s new ambitions may be. Comcast has already announced it is putting its 2019 stock buyback program on hold to help speed up the process to pay down debt from its acquisition of Sky. (For related reading, see also: Comcast Should Buy Back Shares, Focus On Cable: MoffettNathanson.)
With third-quarter results expected around the end of October, investors should get a sense of what the future holds for the company and the stock.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company’s actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer’s bio and his portfolio’s holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.