In this part of the series, we’ll look at some key metrics investors can use to compare the values of media companies. Specifically, we’ll look at media valuation multiples.
Some valuation metrics include 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.
Price-based multiples measure value from a shareholder’s perspective. Enterprise value–based multiples help investors understand a company’s value from the perspective of the holders of its sources of capital. These are forward multiples based on the expected value of the denominator after a year.
Is Comcast undervalued?
As the graph above indicates, Comcast (CMCSA) has a forward EV-to-EBITDA multiple of 7.7x and a PE multiple of 17.2x. In contrast, The Walt Disney Company (DIS) has a forward EV-to-EBITDA multiple of 10.1x and a PE multiple of 16.3x.
Peers 21st Century Fox (FOXA), and Charter Communications (CHTR) have forward EV-to-EBITDA multiples of 9.7x and 6.4x, respectively. In the peer group, Charter has the highest forward PE multiple, with 62.3x. Based on its forward EV-to-EBITDA multiple, it appears Comcast is undervalued compared with peers.
Comcast’s value proposition
Comcast is taking on a number of initiatives to face the changing competitive landscape of the media industry. The company is strengthening its cable business through improving its customer service, focusing on its X1 set-top box, and strengthening its high-speed Internet and business services. The company is focusing more on television and digital advertising and employing new advertising technology in the process. Additionally, the recently announced acquisition of DreamWorks Animation (DWA) could further strengthen its competitive position in the industry.