DirecTV (DTV, Financial) is engaged in providing digital television entertainment in the U.S. and Latin America. As of Dec. 31, 2012, the company operated two direct-to-home business units: DirecTV U.S. and DirecTV Latin America, which are differentiated by their geographic locations and are engaged in acquiring, promoting, selling and distributing digital entertainment programming primarily via satellite to residential and commercial subscribers.
In this article, let's take a look at this company and try to explain to investors the reasons this is an apparently appealing investment.
Geographic Strategies
For the U.S. market, the company adopted the following strategies. First, the firm focuses on better negotiation with the content providers as well as introducing online video streaming services. Moreover, it continues to extend the brand leadership as the premium pay-TV provider in the marketplace even in a weak environment.
For the Latin American markets, we can highlight a new set of strategies. These include a gradual penetration in the pay-TV market, which is still low in Latin America. Secondly, it plans to continue to be the most cost-effective provider to both high-end and low-end customers and finally it focuses on driving customers to download and stream OnDemand video.
New Technology
The 4K ultraHD technology offers content with horizontal resolution on the order of 4,000 pixels, and the company is trying hard to be the first to offer it.
DirecTV has also planned to launch two more satellites in the next years. For example, the TV operator will launch a new satellite (called Intelsat DLA-2, also known as Intelsat 31) for its Panamericana division (Latin America, except Mexico and Brazil).
Share Repurchases
DirecTV authorized a $3.5 billion stock buyback program, with Chief Executive Mike White saying the satellite-television provider's current stock price is "far below our intrinsic value."
Analyst Recommendation
The firm is currently Zacks Rank # 2 – Buy, and it also has a longer-term recommendation of “Neutral.” A Buy rating indicates that the stock, over the next one to three months, will perform at an annualized rate of 19.04%, outperforming the S&P 500. For investors looking for a better Zacks Rank, there is no better option.
Relative Valuation
In terms of valuation, the stock sells at a trailing P/E of 14.9x, trading at a discount compared to an average of 16.7x for the industry. To use another metric, its price-to-sales ratio of 1.3x is below the industry average of 1.43x.
Earnings per share (EPS) decreased slightly in the most recent quarter compared to the same quarter a year ago (from $1.55 to $1.53). But both the top and the bottom line surpassed the respective Zacks Consensus Estimate. In the next graph we can see that it has demonstrated an interesting positive trend in the last eight years and we include the stock price because EPS often lead the stock price movement. The last year, the stock´s share price has jumped by 30.45%, exceeding the S&P 500 performance.
Finally, we can consider the return on assets (ROA), which is an indicator of how profitable a company is relative to its total assets. This ratio gives an idea of how efficient management is at using its assets to generate earnings. The higher it is, the better, because the company is earning more money on less investment. So let´s compare the current ratio with the peer group in the next table:
| Ticker | Company Name | ROA (%) |
| DTV | DIRECT TV | 13.05 |
| CHTR | Charter Communications Inc | -0.98 |
| DGI | Digital Globe Inc | -2.13 |
| SATS | EchoStar Corp | 0.04 |
| GILT | Gilat Satellite Networks, Ltd. | -5.59 |
| I | Intelsat SA | -1.54 |
The company has a current ratio of 13.05% which is higher than the one registered by Charter Communications Inc. (CHTR, Financial), Digital Globe Inc. (DGI, Financial), EchoStar Corp (SATS, Financial), Gilat Satellite Networks Ltd. (GILT, Financial) and Intelsat SA (I, Financial).
Final Comment
As outlined in this article, we see with good eyes the potential of the new business strategies, the new technology improvement and the positive signal given via the share repurchases. Additionally, it has initiated a massive marketing drive to attract customers to its exclusive programming, offering the best plans.
I would recommend investors to consider adding the stock for their long-term portfolios. Hedge fund gurus have also been active in the company in fourth quarter 2013. Gurus like Wallace Weitz (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Jean-Marie Eveillard (Trades, Portfolio), John Rogers (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio) and David Dreman (Trades, Portfolio) have also invested in it.
Disclosure: James Miller holds no position in any stocks mentioned.
