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Comcast Responds to Shareholder Complaint

Cable Operator Defends Consistent Financial Performance 1/18/2008 04:34:00 AM Eastern

Comcast responded to a complaint from one of its largest shareholders by trumpeting its predictable financial performance, even in the worst of times.

In a statement, the nation’s largest cable operator said it “continues to perform well, consistently delivering superior revenue and cash-flow growth and significant free cash flow despite a challenging economy and an increasingly competitive environment. Our management team is intensely focused on executing our strategic plan, investing for profitable growth and creating long-term shareholder value.”

Comcast has come under fire from investors for its disappointing stock performance. The company’s shares are down about 40% from their 52-week high and are treading water around the low end of that 12-month range, trading at around $17.30 per share Friday morning.

Earlier this week, Chieftain Capital Management -- which owns 60.5 million shares, or roughly 2% of the company -- sent a letter to Comcast executive management complaining about the company’s performance. The contents of the letter -- which were splashed across the pages ofBarron’s Thursday morning -- included Chieftain’s call for more cash to be returned to shareholders through a dividend or buyback, stricter financial discipline, revised executive compensation and, most ominously, the ouster of CEO Brian Roberts.

“We welcome input from our shareholders and take their views seriously,” Comcast’s statement read. “We have met with Chieftain and have discussed their perspective on numerous occasions. While we have expressed our disagreement with Chieftain’s perspective in the past, we will review Chieftain’s most recent correspondence and will respond in due course.”

Chieftain is not the only shareholder expressing disapproval of Comcast’s performance. The company has been slapped with several class-action lawsuits in recent weeks. Chagrined investors alleged that the company inflated its stock price through misleading statements regarding operations and performance.

In December, Comcast revised its outlook for full-year-2007 guidance for several financial and operating metrics, citing a “challenging economic and competitive environment.” Among the revisions were lower forecasted revenue-generating-unit growth to 6 million from 6.5 million; lower cable-revenue growth at 11% from 12%; and lower cable operating-cash-flow growth of 13% from 14%.

Comcast releases its fourth-quarter and full-year-2007 results Feb. 14, and it will also provide an outlook for 2008. Consensus analyst estimates are for Comcast to earn $0.17 per share in the fourth quarter and $0.72 per share for 2007, according to SNL Kagan.

Pali Research analyst Rich Greenfield offered an alternative view. “The last thing we believe Comcast should do is drastically lever up and buy back stock as Chieftain is asking for,” Greenfield wrote in a Pali blog, noting that the cable company was at “war” with competition satellite and telcos, as well as on new fronts with Apple and wireless.

“We hope to see Comcast lower guidance (to sub-10% revenue/EBITDA [earnings before interest, taxes, debt and amortization] growth) in the near future for 2008 and 2009 so that it can focus on properly positioning the company for the future, as well as setting a guidance ‘bar’ it can actually meet/exceed,” Greenfield wrote.

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