DIRECTV Remains Neutral - Analyst Blog
March 08 2013 - 11:40AM
Zacks
We reiterate our long-term Neutral
recommendation on DIRECTV Inc. (DTV) as we believe
the stock is currently fairly valued. The company posted strong
financial results for the fourth quarter of 2012, easily beating
the Zacks Consensus Estimates.
Why at
Neutral?
DIRECTV continues to enjoy huge net
subscriber addition in both the U.S. and Latin America, growing
average revenue per user in the U.S. and higher operating margin
and operating profit before depreciation and amortization.
The company is trying to establish itself as a premier
pay-TV operator targeting high-quality subscribers. Management is
confident that it will be able to achieve its financial goals for
2013 easily.
However, macroeconomic
fluctuations, huge programming costs and growing competitive
threats may restrict the company’s upside potential. Already, the
rate of subscriber addition in the U.S. has moderated due to a
stricter credit standard and reduced promotional discounts. DIRECTV
currently has a Zacks Rank #3 (Hold).
Risk/Reward Virtually
Balanced
DIRECTV has improved its subscriber
quality – shrinking the proportion of subscribers with low credit
ratings - by restructuring dealer incentives (changed the
commission and penalty structure), cutting the proportion of
third-party dealer sales, and implementing a credit card policy for
new subscribers.
Both DIRECTV and its closest rival
DISH Network Corp. (DISH) are gradually
transforming their respective business models from being a
low-priced operator to a premium service provider.
Meanwhile, DIRECTV is trying hard
to acquire Vivendi SA’s subsidiary unit Global Village Telecom
(GVT) – a Brazilian telecom carrier. GVT offers voice, broadband
and pay-TV services in Brazil. At present, DIRECTV is Brazil's No.
2 pay-TV service provider.
If successful, the company will
generate substantial synergies from the acquisition by offering
bundled voice, broadband, and high quality pay-TV services in
Brazil. Apart from DIRECTV, other major bidders for GVT are
America Movil SAB (AMX), Liberty Global
Inc. (LBTYA) and a private equity group.
Nevertheless, a major near-term
headwind for DIRECTV is the recent currency devaluation in
Venezuela. The government of Venezuela has devalued its currency
Bolivar by 32%. This was Bolivar’s fifth devaluation in a decade.
Venezuela contributes approximately 3.5% of the total revenue of
DIRECTV.
The company has already declared
that it will incur a one-time pre-tax charge of $160 million in
2013 related to the devaluation of Bolivar. This will negatively
impact DIRECTV’s Latin American revenue, net earnings and cash flow
growth.
AMER MOVIL-ADR (AMX): Free Stock Analysis Report
DISH NETWORK CP (DISH): Free Stock Analysis Report
DIRECTV (DTV): Free Stock Analysis Report
LIBERTY GLBL-A (LBTYA): Free Stock Analysis Report
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