Tune In DirecTV: Still A Great Show

10/7/2013


  Recent Price
$60
  Dividend
$0.00
  Yield
0.0%
  P/E Ratio
12
  Shares (millions)
561
  Long-Term Debt as % of Capital
144%
  52-Week Price Range
$67.85 - $47.71

DirecTV ($60; DTV) is a Focus List Buy mostly because it seems unduly cheap at 12 times trailing earnings, 39% below the median cable & satellite provider in the S&P 1500 and 27% below its own five-year average P/E ratio. Also contributing to the Quadrix Value score of 96 are price/cash flow and enterprise ratios among the cheapest 20% of U.S.-traded stocks.

Some former high flyers become cheap because they stop growing. Not DirecTV. The consensus projects roughly flat per-share profits in the second half of this year but growth of 23% next year and 12% annually over the next five years.

With such a mix of growth and value, DirecTV shares should be leading the pack. So why have they lagged recently, declining 4% over the last three months while the S&P 1500 rose 5%? Chalk it up to disconcerting news out of Latin America and the National Football League, along with long-term concerns about the viability of the pay-television model in an age of internet TV and spiraling sports costs.

Weakness in Latin America

Last year DirecTV generated 21% of revenue and 19% of operating profits in Latin America. The combination of a slowing economy and currency devaluation has slowed DirecTV's growth. See page 5 for more on the currency issues.

In the June quarter, the company added just 165,000 net subscribers in Latin America, down from 645,000 in the year-earlier period. Revenue per subscriber fell 11%, mostly because of currency woes.

However, if this is a bad quarter, DirecTV could do worse. Latin American revenue rose 12%, or more than 20% in local currency. Total subscriber additions reached a record 1.19 million, buoyed by strong demand in Argentina, Brazil, and Columbia. Higher churn caused net additions to decline, but most of the losses occurred when a chunk of subscribers left after the Brazilian unit stopped offering retention credits not authorized by the parent company, a problem that shouldn't recur. In the U.S., revenue per user rose, boosting overall revenue despite a slight dip in subscribers.

Latin America remains DirecTV's best growth engine. Subscriber growth in the region has averaged 26% annually over the last five years, versus 4% for the U.S. According to the consultant Digital TV Research, fewer than half of Latin American TV households use paid services, leaving plenty of room for expansion.

Closer to home, rivals have talked to the NFL about the rights to retransmit football games after DirecTV's contract expires in 2014. The threat is real, and the cost of the contract will likely rise quite a bit from the current $1 billion per year. But given its position as the incumbent, DirecTV should have the inside shot at retaining the contract.

Late last month, DirecTV suggested it could offer a targeted direct-to-internet video product. If handled well, such a service could blur the line between traditional pay-TV providers and the internet-only content providers nipping at them.

An annual report for The DirecTV Group Inc. is available at 2230 E. Imperial Highway, El Segundo, CA 90245, (310) 964-5000, investor.directv.com.

DIRECTV
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Jun '13
1.18
vs.
1.09
7%
65.81
-
53.50
13 - 11
Mar '13
1.43
vs.
1.07
8%
57.64
-
47.71
13 - 10
Dec '12
1.55
vs.
1.02
8%
54.08
-
48.00
13 - 12
Sep '12
0.90
vs.
0.70
8%
55.17
-
46.59
14 - 12
           
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2012
29.74
4.58
0.00
55.17
-
41.92
12 - 9
2011
27.23
3.47
0.00
53.40
-
39.82
15 - 11
2010
24.10
2.48
0.00
44.61
-
29.83
18 - 12
2009
21.57
1.44
0.00
34.25
-
18.81
24 - 13
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
93
63
96
97
61
30
27

   * Earnings exclude special items.
   † Quadrix® scores are percentile ranks, with 100 the best.


Current Hotline

Stock Spotlight

Individual Stock Reports

ISRs make stock research easy!

Perhaps the most valuable two page reports available anywhere.

All the data you would normally have to plow through years of 10-K filings, earnings reports, and reams of market data to assemble — yours all in one concise report.

ISRs contain our proprietary Quadrix scores — find out how we rate all the stocks in the S&P 500.

Visit us at individualstockreports.com