DirecTV Puts On Growth Show

4/25/2011


  Recent Price
$46
  Dividend
$0.00
  Yield
0.0%
  P/E Ratio
19
  Shares (millions)
833
  Long-Term Debt as % of Capital
102%
  52-Week Price Range
$47.60 - $31.00

DirecTV ($46; DTV) estimates that 95% of U.S. consumers recognize its brand name. And the company elevated its reputation across Latin America last year by providing extensive coverage of the World Cup soccer tournament. DirecTV built its highly visible presence on hardware hidden from view — its $2 billion fleet of satellites orbiting the earth.

These satellites allow DirecTV to offer comprehensive coverage to areas with low population density and expedite the introduction of new services. DirecTV has more than 19.2 million U.S. subscribers. The Latin America business serves another 8.9 million subscribers.

By targeting wealthier and less-risky clients, DirecTV partially insulated itself from the recession. In 2010, the company set all-time highs for sales, operating income, and cash provided by operations, all of which grew at double-digit rates. DirecTV is a Focus List Buy and a Long-Term Buy.

Business breakdown

The U.S. business (84% of 2010 revenue) grew sales 9% last year, as average revenue per user increased 5%. DirecTV sees its domestic business growing 5% to 9% this year. Latin America (15%) should generate 20% higher revenue in 2011 on top of 25% growth last year. DirecTV entered 2011 with momentum, as net subscriber additions accelerated in the December quarter.

DirecTV separates itself from rivals by airing Hollywood movies ahead of the DVD release and offering the NFL Sunday Ticket. The company is launching a premium service that lets subscribers view movies 10 weeks after the theatrical release for $29.99. The deal appeals to studios seeking to offset lagging DVD sales and gives DirecTV a jump on Netflix ($242; NFLX) and Blockbuster. Sony, Universal Pictures, Warner Bros., and 20th Century Fox have all signed on with DirecTV.

The ongoing NFL lockout threatens DirecTV’s revenue and operating cash flow — at least in the short term. If the NFL season is canceled, DirecTV could lose more than $600 million in revenue, though it would have a far smaller effect on earnings. DirecTV would still pay full licensing fees to the NFL but would receive credits for a portion of those payments in the following year and possibly the rights to an extra season.

When DirecTV releases March-quarter results on May 5, the consensus calls for per-share earnings of $0.71, up 20%, on 11% higher revenue. Wall Street anticipates 25% growth for the year.

DirecTV has repurchased about $15 billion of its stock in the past five years, retiring 44% of its outstanding shares. Last year alone, DirecTV reduced its share count by 12%. DirecTV is in the midst of a $6 billion repurchase plan for 2011, enough to reduce outstanding shares by nearly 16% at current prices.

Conclusion

The stock, up 15% this year, hit an all-time high in April. Yet DirecTV still seems reasonably valued at 19 times trailing earnings, 13% below the five-year average. An annual report for The DirecTV Group Inc. is available at 2230 E. Imperial Highway, El Segundo, CA 90245; (310) 964-5000, www.directv.com.

 

DIRECTV
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Dec '10
0.74
vs.
0.48
+ 11%
44.61
-
39.12
20 - 18
Sep '10
0.55
vs.
0.37
+ 10%
42.61
-
33.25
21 - 16
Jun '10
0.60
vs.
0.40
+ 12%
39.87
-
31.00
22 - 17
Mar '10
0.59
vs.
0.20
+ 14%
35.18
-
29.83
24 - 21
           
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2010
24.10
2.48
0.00
44.61
-
29.83
18 - 12
2009
21.57
1.46
0.00
34.25
-
18.81
23 - 13
2008
19.69
1.36
0.00
29.10
-
11.25
21 - 8
2007
17.25
1.20
0.00
27.73
-
20.73
23 - 17
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
93
81
78
99
56
16
63

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


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