Comcast vs. Charter Communications: Which Entertainment Stock is a Better Buy?

Comcast Corporation (CMCSA) in Philadelphia, Pa., operates as a media and technology company worldwide. It operates through Cable Communications; Cable Networks; Broadcast Television; Filmed Entertainment; Theme Parks; and Sky segments. In comparison, Charter Communications, Inc. (CHTR) in Stamford, Conn., operates as a broadband connectivity and cable operator company serving residential and commercial customers in the United States.

The entertainment industry has been evolving quickly over the past couple of years, with over-the-top (OTT) platforms substituting traditional entertainment media. Industry players are constantly investing in technologies to offer innovative content and improve their distribution models to remain relevant. The global entertainment and media market is expected to grow at a 10.4% CAGR over the next nine years to approximately $6.71 billion by 2030. Therefore, prominent entertainment stocks CMCSA and CHTR are expected to grow steadily.

CHTR stock has gained 32.3% in price over the past six months, while CMCSA has returned 12.1%. Also, CHTR’s 20.6% gains year-to-date compare with CMCSA’s 14.1% returns. In terms of their past year's performance, CMCSA is the clear winner with 38.8% gains versus CHTR’s 29.9%.

But which stock is a better buy now? Let’s find out.

Recent Developments

On August 18, CMCSA and ViacomCBS Inc. (VIAC) formed a partnership to launch a new subscription video on demand (SVOD) service in more than 20 European territories, encompassing 90 million homes. This partnership is expected to accelerate the companies’ market expansion and build a leadership position in SVOD in Europe.

CHTR also partnered with ViacomCBS. On July 15, CHTR and ViacomCBS announced comprehensive, multi-year distribution agreements for the continued carriage of ViacomCBS’ leading portfolio, in addition to licensing ViacomCBS’ suite of streaming services. The company expects these agreements to allow CHTR to enhance its customers’ experience while furthering its strategic interests in the advanced advertising realm and aggregated video store concept with the addition of the streaming apps.

Recent Financial Results

CMCSA’s revenues increased 20.4% year-over-year to $28.55 billion in its fiscal second quarter, ended June 30. Its operating income grew 18.5% from its year-ago value to $5.51 billion. Its adjusted net income stood at $3.94 billion, up 24.3% from the same period last year. The company’s adjusted EPS increased 21.7% year-over-year to $0.84.

CHTR’s total revenues increased 9.5% year-over-year to $12.80 billion in its  fiscal second quarter, ended June 30. Its net income grew 33.2% from its year-ago value to $1.02 billion, while its net cash flow from operating activities improved 13.3% year-over-year to $4.00 billion. The company’s EPS improved 45.7% year-over-year to $5.29.

Past and Expected Financial Performance

CMCSA’s EBITDA and revenues have grown at  CAGRs of 4% and 7.5%, respectively, over the past three years. Analysts expect CMCSA’s revenue to increase 11.3% in the current year and 6.5% next year. The company’s EPS is expected to grow 15.4% in the current quarter, 19.5% in the current year, and 21.8% in the next year. Furthermore,  its EPS is expected to grow at a 18.7% rate  per annum over the next five years.

In comparison,  CHTR’s EBITDA and revenues have grown  at CAGRs of 7.5% and 5.5%, respectively, over the past three years. Analysts expect the company’s revenue to increase 7.2% in the current quarter, 6.9% in the current year, and 5.6% in the next year. The company’s EPS is expected to grow 44.6% in the current quarter, 38.3% in the current year, and 40.9% in the next year. Furthermore , CHTR’s EPS is expected to grow at a 36.8% rate  per annum over the next five years.

Profitability

CMCSA’s trailing-12-months revenue is 2.18 times CHTR’s. CMCSA is also more profitable, with a gross profit margin and net income margin of 66.81% and 11.44%, respectively, compared to CHTR’s 44.47% and 7.78%.

Furthermore, CMCSA’s ROA and ROTC of 4.27% and 5.84%, respectively, compare with CHTR’s 4.20% and 5.29%.

Thus, CMCSA is more profitable here.

Valuation

In terms of forward EV/Sales, CHTR is currently trading at 4.64x, which is 31.5% higher than CMCSA, which is currently trading at 3.18x. Also, CHTR’s 11.82 forward EV/EBITDA ratio is 9.8% higher than CMCSA’s 10.66.

Thus, CMCSA is relatively affordable here.

POWR Ratings

CMCSA has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. CHTR, in contrast, has an overall rating of C, which translates to Neutral. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

CMCSA has a B grade for Sentiment. This favorable sentiment is justified because analysts expect the stock to gain 13.1% over the next 12 months. CHTR, on the other hand, has a C grade for Sentiment. Analysts expect the stock price to climb  4.4% in the near term, consistent with the Sentiment grade.

Of the nine stocks in the Entertainment - TV & Internet Providers industry, CMCSA is ranked #1, while CHTR is ranked #5.

Beyond what we’ve stated above, we have also rated stocks for Stability, Quality, Sentiment, and Growth. Click here to view CMCSA ratings. Also, get all CHTR ratings here.

The Winner

The entertainment industry is expected to register steady growth over an extended period, allowing entertainment companies CMCSA and CHTR to deliver substantial returns. However, we think its solid financials and higher profit margins make CMCSA the better buy here.

Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Entertainment - TV & Internet Providers industry here.

CMCSA shares were unchanged in after-hours trading Tuesday. Year-to-date, CMCSA has gained 15.14%, versus a 20.60% rise in the benchmark S&P 500 index during the same period.

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.

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