DIRECTV: A Promising Bet - Analyst Blog

Continuous elimination of low-quality customers, aggressive share repurchase plans and the launch of TV Everywhere and online video streaming services have been paying off well for the largest U.S. satellite TV operator DIRECTV DTV. The share price of the company has surged more than 33% in the past twelve months. So far this year alone, the stock has gained nearly 20%.

DIRECTV has improved its subscriber quality – i.e. shrunk the proportion of subscribers with low credit ratings. With a high-quality subscriber base, DIRECTV has implemented programming package price increases, and higher HD and DVR equipment service and lease fees in the U.S., in turn driving higher ARPU, which resulted in margin expansion. Moreover, launch of value-added services along with continuous share buyback plans are likely to act as catalysts for the company going forward.

At the end of the first quarter of 2014, the U.S. segment of the company had 20.26 million subscribers, up 0.8% on an annualized basis. ARPU (average revenue per user) in the U.S. stood at $100.16 compared with $96.06 in the prior-year quarter. Average monthly churn rate was 1.45%, flat year over year, owing to customer screening, target marketing, innovative product developments and healthy business relations with content manufacturers and media companies.

DIRECTV has undertaken a three-pronged strategy for the U.S. market, where pay-TV penetration is nearing saturation. The strategy includes streamlining the company's cost structure through better negotiation with the content providers; introducing online video streaming (TV Everywhere) facilities and focusing more on evolving as a premium brand in the U.S. pay-TV market.

DIRECTV's earnings have outpaced the Zacks Consensus Estimate in three of the last four quarters, with an average earnings surprise of 8.1%. According to Zacks, the company's expected growth for the current year is 8.20% which is better than its rivals Dish Network Corp. DISH, TiVo Inc. TIVO and Liberty Media Corp. LMCA.

DIRECTV currently has a Zacks Rank #3 (Hold).

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