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DIRECTV (DTV - Analyst Report) is slated to release its third-quarter 2012 results on Tuesday, November 2, 2012, before the opening bell.  The current Zacks Consensus Estimate for the fourth quarter is pegged at 92 cents, representing an annualized growth of 31.79%.

With respect to earnings surprise, DTV has outperformed the Zacks Consensus Estimate over two out of the last four quarters. The average earnings surprise over the trailing four quarters was a positive 1.20%, implying that the company has outdone the Zacks Consensus Estimate by the same magnitude over two out of the last four quarters.

Second-Quarter Recap

On August 2, 2012, DTV reported its second-quarter fiscal 2012 results. Quarterly GAAP net income was $711 million or $1.09 per share compared with $701 million or 91 cents per share in the year-ago quarter. Quarterly earnings per share of $1.09 per share fell short of the Zacks Consensus Estimate of $1.14.

Total revenue in the reported quarter came in at $7,224 million, up 9.5% year over year, and slightly ahead of the Zacks Consensus Estimate of $7,203 million. Such impressive growth in revenue was mainly attributable to huge subscriber growth in Latin American region.

Agreement of Estimate Revisions

In the last 30 days, out of the 16 analysts covering the stock, four analysts increased their EPS estimates for the third quarter of 2012 while an equal number of analysts have decreased their estimates for the same time period. Similarly, for fourth quarter of fiscal 2012, out of the 14 analysts covering the stock, two analysts raised their EPS estimates but four analysts moved in the opposite direction.

For fiscal 2012, in the last 30 days, out of the 17 analysts covering the stock, four analysts increased their EPS estimates while a similar number of analysts declined the same. Similarly, for fiscal 2013, out of the 16 analysts covering the stock, four analysts raised their EPS estimates while five moved in the opposite direction.

Magnitude of Estimate Revisions

During the last 30 days, the current Zacks Consensus Estimate was in line with the previous estimate of 92 cents for the third quarter of 2012 while for the fourth quarter of 2012,the current Zacks Consensus Estimate was3 cents below the previous estimate of $1.15.

For fiscal 2012, the current Zacks Consensus Estimate was at par with the previous estimate of $4.23. Likewise, for fiscal 2013, the current Zacks Consensus Estimate was just a penny below the earlier estimate of $5.20.

Earning Surprises

The current Zacks Consensus Estimates for the ongoing quarter contains 1.09% downside potential while for the upcoming quarter, it is reflecting a 1.79% upside potential (essentially a proxy for future earning surprises). Similarly, for fiscal 2012 and 2013, the Zacks Consensus Estimates’ downside potentials are 0.24% and 1.54%, respectively.

Our Recommendation

Strong fundamentals along with huge subscriber growth across all its segments make the company quite popular within the pay-TV industry.

However, within the satellite TV industry, DIRECTV is facing intense competition from its nearest rival DISH Network (DISH - Analyst Report). Furthermore, U.S. telecom giants, AT&T (T - Analyst Report) and Verizon Wireless (VZ - Analyst Report) are increasingly rolling out their fiber-based network in order to provide video services. Additionally, the newly developed Internet video streaming companies like Netflix, Hulu and YouTube have become major threats to the overall pay-TV industry.

We, thus, maintain our long-term Neutral recommendation on DIRECTV. Currently, the company has a Zacks#3 Rank, implying a short-term Hold rating on the stock.

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