Taking Stock by Malcolm Berko

Dear Mr. Berko: I think I would like to buy 50 shares of Comcast, which trades for $14.77 a share. Please tell me what you think of this company and if you think it's a good investment. And please tell me why you switched your e-mail from Comcast to Yahoo and Gmail. — P.R., Boca Raton, FL

Dear P.R.: Comcast's (CMCSK-$14.77) book value has nearly doubled in the past 10 years from $8.19 a share in 1999 to $15 a share this year. Revenues grew six-fold from $6 billion to almost $36 billion in 2009. Net profit margins, which were 4.2 percent, doubled to 8.4 percent; operating margins improved 31 percent; return on equity doubled to 6.7 percent while return on capital almost tripled to 7.0 percent. And just last year, the board instituted its first dividend of 25 cents a share. And that record is not unimpressive.

CMCSK has 25 million TV subscribers in 39 states; its Internet service has 15 million customers; and its phone service adds another 6.4 million people to CMCSK's billing list. However, net gains from video revenues and cable subscribers during the last six months have been a bit disappointing and longer-term concerns about the nature of its TV business are reflected in CMCSK's low P/E ratio of 13 times forward earnings, which suggests that its past double-digit growth is now over. Certainly, a recessionary environment is one factor contributing to fewer subscribers, but I believe this trend is due to Comcast's mature customer base. And if my observation is correct, this could badly bridle CMCSK's long-term domestic prospects because a significant portion of the company's success derives from the transition to digital from analog. So management has decided to generate new growth from its Internet offering, its phone (voice over IP) business and peripheral services believing this concentration can provide 3 percent to 5 percent revenue growth. But that potential growth is a little too aggressive for my tastes.

I doubt that CMCSK can successfully grow its phone business because it must go head to head with Verizon, AT&T, Sprint, Quest, etc..

I think the best CMCSK can do during the next five years is to barely generate moderate growth and "barely" is not enough to own the stock. Management will have success creating bottom-line growth with cost-cutting efforts and projects that will improve efficiencies. So earnings four to five years out might improve from $1.15 in 2010 to perhaps $1.40 by 2015. But that's not enough to encourage me to own the stock. These and other factors dampen my enthusiasm. And perhaps the negativity I fear the most is CMCSK's CEO Brian Roberts, whose family founded Comcast, and who took over the helm from his father in 2004. Well, you know what happens when a family runs the company. Last year, Mr. Roberts Jr.'s total compensation exceeded $20 million and his daddy remained on the payroll with juicy payments and benefits. And of course the Roberts own all of the super-voting Class B shares that represent 33 percent of the voting control while the Class A (the public) controls the remaining 67 percent. I don't trust young Roberts Jr., who treats CMCSK as his personal fiefdom and seems to forget that he's supposed to be running CMCSK for thousands of shareholders. Then I'm reminded of Adelphia Communications and the father and son team (Rigas) that nearly bankrupted the company and ended up in jail.

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.

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