Focus On The Consumer

12/14/2009


DirecTV's growth show

DirecTV ($33; DTV) has a history of both growing free cash flow and shrinking its share count, down 21% from three years ago. DirecTV is a Focus List Buy and a Long-Term Buy.

Two satellite broadcasters — DISH Network ($21; DISH) and DirecTV — control about 30% of the U.S. market for pay TV, and DirecTV is the bigger of the two. DirecTV is gaining market share in the down economy, adding to a customer base that already includes more than 18 million monthly subscribers in the U.S. and another four million in Latin America.

DirecTV offers exclusive content including the NFL Sunday Ticket and other premium sports packages. A partnership with AT&T ($28; T) bundles the services of the two companies. The partnership, which started last February, should boost year-to-year growth in the December and March quarters.

Customer attrition, or churn, rose in the September quarter, reflecting DirecTV’s efforts to maintain pricing. The company dialed down its use of retention packages, reserving these promotions for subscribers deemed more likely to generate higher returns down the road. DirecTV did manage to boost average revenue per user (ARPU). In the September, quarter, ARPU rose 2.1% to $85.32 in the U.S.

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

DIRECTV
Quarter

    Per-Share
     Earnings*

Sales
Change

      Quarterly
      Price Range

P/E Ratio
Range

Sep '09 $0.37 vs. $0.33 + 10% $27.99 -

$22.81

23 - 18
Jun '09 0.40 vs. 0.40 + 9% 26.00 - 21.13 21 - 17
Mar '09 0.20 vs. 0.32 + 7% 24.28 - 18.81 18 - 14
Dec '08 0.31 vs.

0.30

+ 9% 26.52 - 17.70 20 - 13
             
————————————————— Quadrix Scores † —————————————————
Overall Momen-
tum
Value Quality Financial
Strength
Earnings
Estimates
Performance
91 76 60 94 77 55 77

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


Windows' great view

An estimated 90% of the world’s personal computers run Microsoft ($30; MSFT) operating systems, and the newest version of Windows could give the company a holiday lift. Microsoft is a Long-Term Buy.

Sales of new Windows operating systems typically peak in the first quarter of a new release, and early reports show Windows 7 sprinting past the performance of previous offerings. In the four months leading up to the Oct. 22 launch, Microsoft offered PC buyers free Windows upgrades, deferring half of the related revenue until the release. The company has deferred $1.74 billion in revenue and more than $0.12 in earnings per share related to Windows. Over the last year, the Windows segment accounted for 24% of Microsoft’s segment sales and 36% of operating income.

The entertainment and devices division (14% of sales, 1% of operating income) sells consumer devices, most notably the Xbox videogame system. Xbox sales tend to rise around the holidays and the release dates of new games. In the wake of the September launch of the latest in the popular Halo franchise, Xbox currently has both variables in its favor. Fears of disappointing holiday sales ripple through the gaming industry, but Xbox appears well positioned, with five of the 10 top-selling videogames in October. Microsoft has lowered the price of Xbox consoles to compete with the aggressive pricing of other console makers.

An annual report for Microsoft Corp. is available at 1 Microsoft Way, Redmond, WA 98052; (425) 882-8080; www.microsoft.com.

MICROSOFT
Quarter

    Per-Share
     Earnings*

Sales
Change

      Quarterly
      Price Range

P/E Ratio
Range

Sep '09 $0.40 vs. $0.48 - 14% $26.25 -

$22.00

16 - 14
Jun '09 0.34 vs. 0.45 - 17% 24.34 - 18.18 14 - 11
Mar '09 0.33 vs. 0.47 - 6% 21.00 - 14.87 11 - 8
Dec '08 0.47 vs.

0.50

+ 2% 27.47 - 17.50 14 - 9
             
————————————————— Quadrix Scores † —————————————————
Overall Momen-
tum
Value Quality Financial
Strength
Earnings
Estimates
Performance
82 51 53 86 85 83 79

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


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