Comcast Aims to Improve Its Leverage Target in 2017



Leverage guidance

Comcast (CMCSA) plans to have a leverage of between 2 and 2.5 in 2017. The company ended 2016 with net debt-to-adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of 2.2x.

Increased capital expenditure (or capex) and a higher number of share repurchases and dividend payments continue to drive Comcast’s debt levels. The company exited 3Q17 with long-term debt of $59.7 billion compared to $55.6 billion in the previous year’s quarter. At the end of the first nine months of 2017, the company had repaid $2.8 billion worth of debt and raised $11.5 billion worth of long-term debt.

In the graph above, we can see Comcast’s net debt-to-adjusted EBITDA ratio. In the last four years, this ratio has continued to expand, mainly due to the company’s rising long-term debt.

Comcast has one of the highest debts compared to other media companies such as Viacom (VIAB), DISH Network (DISH), and CBS (CBS) with their long-term debts of $11.1 billion, $15.1 billion, and $9.1 billion, respectively, as of the end of September 30, 2017.

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Cause of increasing leverage

Comcast is aggressively deploying DOCSIS 3.1 for better broadband speeds and extending its Xfinity platform. Moreover, the company’s rollout of its wireless service has further accelerated its capex.

At the end of September 30, 2017, the company had incurred capex of $6.8 billion against the $6.7 billion it incurred in the same period of the previous year. The company finished 2016 with capex of $9.1 billion. It anticipates that the capex in its Cable segment will remain the same at 15% of Cable revenue in 2017, while for NBCUniversal, Comcast expects its capex to rise 10% driven by its theme park investments.

At the end of 3Q17, the company had also returned ~$2.4 billion worth of capital to its investors through buybacks and dividend payments compared to the $2 billion it paid in 2016. This capital return policy coupled with higher capex may act as a headwind for the company’s leverage guidance.


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