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Analyst Blog

On Feb 28, 2014, we issued an updated research report on DIRECTV (DTV - Analyst Report), the largest U.S. satellite TV operator. The company posted strong fourth-quarter 2013 results mainly buoyed by solid subscriber and ARPU growth in the U.S. market.

DIRECTV has delivered positive earnings surprise in three quarters out of the last four quarters last year, with an average beat of 9.02%. The company reported strong financial results for the fourth quarter of fiscal 2013 with both the top and the bottom line outpacing the Zacks Consensus Estimate.

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

However, severe competitive threat arising from large telecom operators like AT&T, Inc. (T - Analyst Report) and Verizon Communications (VZ - Analyst Report) coupled with availability of low-cost video streaming companies like Netflix Inc. (NFLX - Analyst Report) and Hulu will further increase customer churn moving ahead.

Moreover, rising programming costs, foreign exchange currency risk and sluggish growth of the 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 will further act as a headwind for 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).

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