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JAT Capital Exits Stake in Comcast

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JAT Capital and Comcast

In its fourth-quarter 13F, JAT Capital revealed that it had sold its stake in Comcast (CMCSA). The position had accounted for about 1.8% of the fund’s 3Q14 portfolio.

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Overview of Comcast

CMCSA is a global media and technology company with two primary businesses: Comcast Cable and NBCUniversal. Comcast Cable is America’s largest triple-play service provider for residential customers under the XFINITY brand. The company also offers these services to businesses. NBCUniversal operates a range of media outlets:

  • NBC
  • Telemundo
  • television production operators
  • television station groups
  • Universal Pictures
  • Universal Parks and Resorts
  • other news, entertainment, and sports cable networks

Charter deal under review by FCC

In April 2014, Charter Communications (CHTR) announced that it had reached an agreement with CMCSA to acquire about 1.4 million existing Time Warner Cable (TWC) subscribers following the close of the $45-billion merger between CMCSA and Time Warner.

The deal would entail the asset transfer of roughly 1.6 million video customers from CHTR and CMCSA to improve geographical presence. CMCSA would create a new, publicly traded entity through a spin-off serving approximately 2.5 million cable system customers. CHTR would own 33% of the entity and CMCSA would own 67%.

Through this deal structure, Comcast is seeking to attain regulatory approval from the Federal Communications Commission (or FCC) by keeping its managed subscriber base at less than 30% of the nation’s multichannel video programming distribution subscriber base.

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The deal has been on hold for nearly a year on anti-competitive grounds, but the FCC should announce its verdict during the first half of 2015. The FCC’s decisions to regulate broadband services like utilities and raise the high-speed Internet connection benchmark from 4 megabits per second (or Mbps) to 25 Mbps are the primarily causes of this delay.

The FCC’s move resulted in greater industry concentration at the newly defined standard for broadband. The merger between AT&T (T) and DIRECTV (DTV) has also been on hold for similar reasons.

Healthy fourth-quarter results

In 4Q14, CMCSA’s revenues grew 4.8% over the prior-year quarter to $17.7 billion. The strong results of the Cable Communications segment drove this growth. This in turn was due to an increase in customer relationships by 178,000 in 4Q14 compared to 121,000 net additions in 4Q13. On  a per-share basis, net earnings increased by 2.8% over the prior-year quarter to $0.74.

CMCSA returned capital to its shareholders through the payment of $580 million in dividends and $2 billion in stock buybacks. The company also announced that the board had authorized increasing its share repurchase program to $10 billion. CMCSA intends to repurchase $4.25 billion for 2015 and could consider additional repurchases depending on the completion of the TWC merger and other business combinations.

Comcast makes up 6.61% of the Consumer Discretionary Select Sector SPDR Fund (XLY). The company also accounts for 1.05% of the iShares S&P 500 Growth ETF (IVW).

In the next part of this series, we’ll discuss JAT Capital’s reduced stake in Twenty-First Century Fox (FOXA).

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