Comcast Corporation (NASDAQ:CMCSA) shares are up more than 5.00% this year and recently increased 1.97% or $0.7 to settle at $36.25. Viacom, Inc. (NASDAQ:VIAB), on the other hand, is down -22.99% year to date as of 11/28/2017. It currently trades at $27.03 and has returned 3.29% during the past week.
Comcast Corporation (NASDAQ:CMCSA) and Viacom, Inc. (NASDAQ:VIAB) are the two most active stocks in the Entertainment – Diversified industry based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.
Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect CMCSA to grow earnings at a 8.60% annual rate over the next 5 years. Comparatively, VIAB is expected to grow at a 5.76% annual rate. All else equal, CMCSA’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. Comcast Corporation (CMCSA) has an EBITDA margin of 33.71%. This suggests that CMCSA underlying business is more profitable CMCSA’s ROI is 10.00% while VIAB has a ROI of 14.50%. The interpretation is that VIAB’s business generates a higher return on investment than CMCSA’s.
The value of a stock is simply the present value of its future free cash flows. CMCSA’s free cash flow (“FCF”) per share for the trailing twelve months was +0.40. Comparatively, VIAB’s free cash flow per share was +2.19. On a percent-of-sales basis, CMCSA’s free cash flow was 2.33% while VIAB converted 6.64% of its revenues into cash flow. This means that, for a given level of sales, VIAB is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Balance sheet risk is one of the biggest factors to consider before investing. CMCSA has a current ratio of 0.70 compared to 1.50 for VIAB. This means that VIAB can more easily cover its most immediate liabilities over the next twelve months. CMCSA’s debt-to-equity ratio is 1.17 versus a D/E of 1.84 for VIAB. VIAB is therefore the more solvent of the two companies, and has lower financial risk.
CMCSA trades at a forward P/E of 16.26, a P/B of 3.07, and a P/S of 2.06, compared to a forward P/E of 6.99, a P/B of 1.80, and a P/S of 0.86 for VIAB. CMCSA is the expensive of the two stocks on an earnings, book value and sales basis. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.
Analyst Price Targets and Opinions
A cheap stock is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. CMCSA is currently priced at a -19.1% to its one-year price target of 44.81. Comparatively, VIAB is -12.75% relative to its price target of 30.98. This suggests that CMCSA is the better investment over the next year.
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 1.70 for CMCSA and 2.80 for VIAB, which implies that analysts are more bullish on the outlook for VIAB.
Risk and Volatility
Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. CMCSA has a beta of 1.01 and VIAB’s beta is 1.56. CMCSA’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. CMCSA has a short ratio of 2.28 compared to a short interest of 4.29 for VIAB. This implies that the market is currently less bearish on the outlook for CMCSA.
Viacom, Inc. (NASDAQ:VIAB) beats Comcast Corporation (NASDAQ:CMCSA) on a total of 7 of the 14 factors compared between the two stocks. VIAB is growing fastly, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. In terms of valuation, VIAB is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, CBS has better sentiment signals based on short interest.