Friday, May 4, 2012

CMCSA/K: Vertical empire

There's scarcely a need to profile Comcast Corp. (CMCSA, CMCSK), it is such a household name. Comcast is that length of twisty cable and the box on top your TV set in 40 states and the District of Columbia, and the other cable that feeds the Internet to your wireless router.

It is "The Voice" and "Days of Our Lives" on NBC, and the always clever and insightful Rachel Maddow on MSNBC.

The Philadelphia, Pennsylvania company is E! Entertainment, the Style Network and The Golf Channel and the Olympics and the Super Bowl.

Comcast is to entertainment what John D. Rockefeller's Standard Oil was to energy: A vertical empire that encompasses its sector top to bottom.

The company has two publicly traded classes of stock, each with its own ticker symbol. CMCSA has a 2.1 billion share float and each share has a 0.1374 vote. CMCSK, with 765.1 million shares outstanding, has no voting rights.

I'll use the more liquid CMCSA chart as the basis of my discussion.

CMCSA had the most bullish chart among 36 stocks added today to the Zacks top-buy list.

The price began its most recent leg up on Nov. 25, 2011 from $20.90. After an upside opening gap in mid-February following a 10% earnings surprise, the ascent moderated into a sideways pattern that still tended, modestly, to the upside.

The most recent highest high was $30.88 on May 1.

Big picture, CMCSA has pushed past its pre-recession high of $30.18 from January 2007. But the move to a sideways pattern tells me that there is still money trapped at that level by the recession collapse that's just itching to get out with a modest profit.

Long story short, I see chart signs that it will be a challenge to break decisively beyond present levels. This month, May, sees CMCSA in the midst of its first intra-month decline since last autumn.

But, in trading as in other areas of life, money overcomes all challenges. If traders believe that Comcast has the earning power to propel prices higher, then prices will rise, whatever resistance history might offer.

Comcast has a return on equity 9% -- not a super-enticing level of return. Long-term debt is 80% of equity, which is higher than I like.

Institutions own 81% of shares, but the price remains relatively low. It takes $1.40 in shares to control a dollar in sales.

Earnings are higher this year than they were to 2011 or 2010 but there is no marked uptrend quarter to quarter. Three of the last 12 quarters has seen a loss, two of them in 2011.

CMCSA on average trades 15.8 million shares a day, and CMCSK trades 3.8 million shares.

Both classes of stock have a moderately good selection of options with adequate open interest and narrow bid/ask spreads. The open interest is more concentrated around the at-the-money level in the CMCSK options, providing greater liquidity but with more limited choice.

Implied volatility on CMCSA stands at 26%, in the lower half of the six-month range. It has risen today following a decline from late April.

Options traders on CMCSA are pricing in 68.2% chance that the stock will close between $27.40 and $31.84 a month from now, for a 7.5% maximum gain or loss.

Comcast next publishes earnings on July 30. Both classes of stock go ex-dividend in July for a quarterly payout yielding 2.2% annualized.

Decision for my account: I would want to see a more decisive break beyond the pre-recession high of $30.18 and a steeper uptrend before opening a bull position. Otherwise, I like CMCSA chart. The financials aren't the best, but as a short-term trader, they're fairly irrelevant in the face of analyst happy talk.

I screened the stocks using a tourney bracket with a one-month daily chart and a three-day half-hour chart, and then turned to a five-year weekly chart for the broad context in analyzing the bracket winner. See my essay "10,000 Charts" for a discussion of my screening methods.

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

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