Does Comcast (CMCSA) Deserve The Benefit Of The Doubt?

Comcast Corp. (NASDAQ: CMCSA) is a company that Wall Street just loves to hate. Much of the antipathy directed toward the Philadelphia-based cable giant seems justified since it faces a myriad of competitors and is vulnerable to getting hurt by the slowing economy.

To be fair, the company continues to attract customers for its services even as it reduces capital expenditures. Comcast today reported second quarter results of $632 million, or 21 cents a share, versus $588 million, or 19 cents, a year earlier. Sales jumped 11 percent to $8.55 billion. Results were short of the 23-cent forecast of analysts surveyed by Bloomberg but beat the $8.57 billion sales forecast.
Now, ordinarily missing the profit forecast would cause the shares to tank. Instead, they are trading up slightly because investors found much about the earnings report to like.

For one thing, Comcast’s free cash flow was $1.17 billion, more than triple from a year earlier. This beat the forecast of veteran cable industry watchers such as Craig Moffett of Sanford C. Bernstein. It also reaffirmed its earnings guidance for the year, countering worries that it would be hurt by cash-strapped customers falling behind in their bills.

The company added 320,000 digital cable customers and 278,000 high-speed Internet customers despite heavy marketing spending by DirecTV Group Inc. (DTV) and Verizon Communications Inc. (VZ). Comcast’s digital voice service, which I am a customer, gained 555,000 customers, underscoring the continuing appeal of the company’s triple play promotion.

Even so, Comcast has plenty of problems. Advertising sales fell 2 percent to $399 million amid softness in the economy. Average monthly revenue per customer fell in the phone and high-speed Internet businesses though the overall rate rose slightly. The company also is embroiled in a dispute with the FCC over its policy of slowing some Internet traffic of people using BitTorrent and other file-sharing sites.  It continues to bleed basic cable subscribers, losing 138,000 in the quarter. That rate has increased from 101,000 a year earlier.

Moreover, Comcast will continue to face tough sledding for years to come as customers – including me –will show the company little brand loyalty and base their decisions on what telecom services they buy on price alone. That’s a recipe for great deals for consumers and lousy ones for shareholders.

Jonathan Berr