In this part of the series, we’ll look at some key metrics you can use to compare media companies’ valuation. To measure valuation, the PE (price-to-earnings), EV to EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization), PCF (price-to-cash-flow), and PFCF (price-to-free-cash-flow) multiples are often used.
Price-based multiples take into account value from a shareholder’s perspective. EV-based multiples help investors understand a company’s value through its sources of capital from a shareholder’s point of view. These are forward multiples based on expected value after a year.
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On a forward EV-to-EBITDA basis, Comcast (CMCSA) appears undervalued compared to peers. As the graph above indicates, Comcast has a forward EV-to-EBITDA multiple of 8.1x and a PE multiple of 17.5x. In contrast, the Walt Disney Company (DIS) has a forward EV-to-EBITDA multiple of 10.3x and a PE multiple of 16.6x. Peers 21st Century Fox (FOXA) and Time Warner (TWX) have forward EV-to-EBITDA multiples of 9.6x and 10.4x, respectively.
Comcast’s strategic initiatives to boost its brand including its entry into the wireless space and the integration of Netflix (NFLX) into its X1 platform should enable it to handle the increasing competition in the media industry. The company’s acquisition of DreamWorks Animation (DWA) has strengthened its position in the industry. Comcast makes up 0.82% of the SPDR S&P 500 ETF (SPY). SPY invests 3.4% of its holdings in the computer sector.