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
-
Here's How To Get Organized And Work For YourselfWhether you’re looking for a side gig or planning to start your own business, it has never been easier to strike out on your own. Here is our guide to navigating working for yourself.
-
How to Manage Risk With Diversification"Don't put all your eggs in one basket" means different things to different investors. Here's how to manage your risk with portfolio diversification.
-
Fed Sees Fewer Rate Cuts in 2025: What the Experts Are SayingFederal Reserve The Federal Reserve cut interest rates as expected, but the future path of borrowing costs became more opaque.
-
Why Is Warren Buffett Selling So Much Stock?Berkshire Hathaway is dumping equities, hoarding cash and making market participants nervous.
-
Fed Cuts Rates Again: What the Experts Are Saying
Federal Reserve The central bank continued to ease, but a new administration in Washington clouds the outlook for future policy moves.
-
If You'd Put $1,000 Into Google Stock 20 Years Ago, Here's What You'd Have TodayGoogle parent Alphabet has been a market-beating machine for ages.
-
Fed Goes Big With First Rate Cut: What the Experts Are Saying
Federal Reserve A slowing labor market prompted the Fed to start with a jumbo-sized reduction to borrowing costs.
-
Stock Market Today: Stocks Retreat Ahead of Nvidia EarningsMarkets lost ground on light volume Wednesday as traders keyed on AI bellwether Nvidia earnings after the close.
-
Stock Market Today: Stocks Edge Higher With Nvidia Earnings in FocusNvidia stock gained ground ahead of tomorrow's after-the-close earnings event, while Super Micro Computer got hit by a short seller report.
-
Stock Market Today: Dow Hits New Record Closing HighThe Nasdaq Composite and S&P 500 finished in the red as semiconductor stocks struggled.
