DIRECTV (DTV): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report
Summary:
DIRECTV reported strong financial results for the third quarter of 2014 whereby both the top and the bottom line surpassed the Zacks Consensus Estimate. Continuous elimination of low-quality customers, aggressive share repurchase plans and the launch of TV Everywhere services are likely to act as tailwinds for the company moving ahead. DIRECTV has become the first multi-channel video provider to offer 4K Ultra HD programming directly on subscribers' TV sets. However, competitive threats to the pay-TV industry, rising programming costs, foreign exchange currency risks and weakness in the Latin American operations pose near-term concerns for the company. Meanwhile, the stock price has soared 26% in the last one year and is currently trading at a 52-week high range. We believe DIRECTV is currently fairly valued and thus, reiterate our Neutral recommendation on the stock.
Overview:
El Segundo, CA-based DIRECTV Group Inc. (DTV) is a provider of satellite delivered digital television, video and broadband. The company was incorporated in 1977 under the name Hughes Electronics Corporation, and was subsequently acquired by General Motors Corporation (GM) in 1985. In Dec 2003, General Motors and News Corporation completed a series of transactions that split the company from GM and the simultaneous sale of GM's 19.8% interest in the company to News Corporation. Hughes Electronics Corporation was renamed as DIRECTV Group in Mar 2004. DIRECTV provides advanced communication services and develops a broad range of entertainment, information and communication services for home and business use, including video, data, voice, multimedia and Internet services.
DIRECTV Group Inc. operates in two reporting segments:
DIRECTV U.S.: DIRECTV U.S. is the largest provider of direct-to-home (DTH) digital television services and the second-largest provider in the multi-channel video programming distribution (MVPD) industry in the United States. It distributes approximately 2,000 digital video and audio channels including 200 basic entertainment channels, 40 premium movie channels, 50 regional and specialty sports networks, an aggregate of 1,500 local channels, 125 Spanish and other foreign language special interest channels, 31 pay-per-view movie and event choices, and about 170 national high-definition, or HD, television channels. DIRECTV U.S. has 20.084 million U.S. subscribers. This segment generated 78% of the total revenue in fiscal 2013.
DIRECTV Latin America: DIRECTV Latin America comprises PanAmericana (DIRECTV owns 100% stake), Sky Brazil (DIRECTV owns 74% stake) and Sky Mexico (DIRECTV owns 41% stake, and is carried as an equity method investment). DIRECTV Latin America has 10.328 million subscribers. This segment generated the remaining 22% of the total revenue in fiscal 2013.
Recent Development
DIRECTV has reached a definitive agreement with AT&T to sell its business to the latter for $48.5 billion. The proposed deal has been approved by the boards of directors of both the companies. The transaction is expected to be a combination of cash and stock bid of $95.00 per share. The deal is expected to close within the next twelve months now awaits the approvals of regulators and DIRECTV shareholders.
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