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We expect DIRECTV (DTV - Analyst Report), the largest satellite TV provider in the U.S., to beat expectations when it reports second-quarter 2013 results on Aug 1, 2013, before the market opens.

Why a Likely Positive Surprise?

Our proven model shows that DIRECTV is likely to beat earnings because it has the right combination of two key ingredients.

Positive Zacks ESP: Expected Surprise Prediction or ESP (Read: Zacks Earnings ESP: A Better Method), which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +0.78%. This is very meaningful and a leading indicator of a likely positive earnings surprise.

Zacks #3 Rank (Hold): DIRECTV currently has a Zacks Rank #3. Note that stocks with Zacks Ranks of #1 (Strong Buy), #2 (Buy) or #3 (Hold) have a significantly higher chance of beating earnings. 

The combination of DIRECTV’s Zacks Rank #3 (Hold) and +0.78% ESP makes us very confident of a positive earnings beat on Aug 1, 2013.

What is Driving the Better-Than-Expected Earnings?

DTV is shifting its focus from customer acquisition to customer retention, which will not only boost ARPU but will also reduce churn rate. With a higher-quality subscriber base, DIRECTV has raised programming package and HD and DVR equipment service and lease fees in the U.S., This will drive ARPU, which will result in margin expansion.

However, a maturing pay-TV market in the U.S. coupled with tough competition from cable MSOs (multi service operator) remain the biggest challenge for DIRECTV. Moreover, large telecom carriers are offering fibre-based TV and other high-speed broadband services, which is impacting DIRECTV’s market share. Additionally, slow economic growth and a weak currency in Brazil will likely hamper DIRECTV’s growth in the Latin American market.

Other Stocks to Consider

Other companies you may want to consider on the basis of our model which shows that they have the right combination of elements to post an earnings beat this quarter are as follows:

CBS Corporation (CBS - Analyst Report) has an Earnings ESP of +1.39% and carries a Zacks Rank #2 (Buy).

Cablevision Systems Corp. (CVC - Analyst Report) currently has an Earnings ESP of +40.00% and holds a Zacks Rank #3 (Hold).

Time Warner Cable Inc. (TWC - Analyst Report) has an Earnings ESP of +1.21% and carries a Zacks Rank #3 (Hold).

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