Updated Research Report on DIRECTV - Analyst Blog

On May 23, 2014, we issued an updated research report on DIRECTV DTV – the largest U.S. satellite TV operator. The company reported mixed financial results for the first quarter of 2014 with the bottom line outpacing the Zacks Consensus Estimate but the top line missing.

DIRECTV has delivered positive earnings surprises in three of the last four quarters, with an average beat of 8.07%. The first-quarter results exhibited bottom line strength that can be attributed to solid subscriber and ARPU growth in the U.S. market.

DIRECTV has considerably improved its subscriber quality – i.e. shrank the proportion of subscribers with low credit ratings. With a higher-quality subscriber base, the company has implemented programming package price increases, and higher HD and DVR equipment service and lease fees in the U.S. This has led to higher APRU and margin expansion. Moreover, launch of value-added services coupled with continuous share buy-back plans are likely to act as catalysts for the company going forward.

On the flipside, severe competitive threat arising from large telecom and cable TV operators coupled with availability of low-cost video streaming companies like Netflix Inc. NFLX and Hulu will increase customer churn while moving ahead.

Moreover, rising programming costs, foreign exchange currency risks and sluggish Latin American operations are near-term concerns for the company.

Unlike other cable and large telecom operators, DIRECTV lacks triple-pay service offerings which we believe is a drawback of the company. Meanwhile, the stock price has soared over 56% in the last year and is currently trading at a 52-week high range.

Currently, DIRECTV carries a Zacks Rank #3 (Hold).

Stocks That Warrant a Look

Other stocks worth considering in this sector include EchoStar Corp. SATS and DigitalGlobe, Inc. DGI. EchoStar has a Zacks Rank #1 (Strong Buy) while DigitalGlobe carries a Zacks Rank #2 (Buy).

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