(DTV) DIRECTV Third Quarter 2011 Earning Scorecard

DIRECTV (DTV), the largest satellite TV operator of the U.S., reported excellent third quarter 2011 financial results, where both earnings per share (EPS) and total revenue beat the Zacks Consensus Estimates. The solid result was attributable to double-digit revenue growth, significant margin expansion and record net customer additions.

Management’s aggressive promotional plan of offering popular NFL SUNDAY TICKET coupled with upgrading customers with premium plans worked wonders for the company.

Third Quarter Highlights

Total revenue in the reported quarter came in at $6,844 million, up 13.6% year over year, and ahead of the Zacks Consensus Estimate of $6,737 million. This was primarily attributable to massive subscriber growth in the U.S. and Latin American regions, solid average monthly revenue per subscriber growth and increasing contribution from the domestic market.

Quarterly GAAP net income was $521 million or 70 cents per share compared with $479 million or 55 cents per share in the year-ago quarter. Quarterly EPS of 70 cents was below the Zacks Consensus Estimate of 73 cents.

Quarterly operating profit before depreciation & amortization (OPBDA) was $1,584 million, up 6.7% year over year. Operating profit in the third quarter of 2011 stood at $1,030 million, up 18.7% year over year, primarily due to gross profit associated with higher revenues, partially offset by an increase in subscriber acquisition costs.

Agreements of Analysts

Over the last 7 days, out of the 14 analysts covering the stock, only one analyst revised the estimate upward for the fourth quarter of 2011, while none revised their estimates downward for the same period. However, for the first quarter of 2012, out of the four analysts, none revised their estimates.

For fiscal 2011, out of the 16 analysts, only one raised the estimate while none moved in the opposite direction. Similarly, for fiscal 2012, only two out of the 15 analysts increased their estimates.

We believe the positive sentiment results from the strong fundamentals and record subscriber growth across all its segments.

Currently, the Zacks Consensus EPS Estimate for the fourth quarter of 2011 is pegged at 88 cents. The projected annual growth rate is 19.11%. Similarly, for the first quarter of 2012, the current Zacks Consensus EPS Estimate of $1.05 indicates a gain of 28.35% year over year.

Magnitude of Estimate Revisions

In relation to the upward revision of estimates over the last 7 days, the current Zacks Consensus Estimate for the fourth quarter of 2011 inched up by a penny to 88 cents from the earlier estimate, while for the first quarter of 2012, the current Zacks Consensus Estimate remained at $1.05 in the last 7 days.

Similarly, for fiscal 2011, during the last 7 days, the current Zacks Consensus Estimate remained unchanged at $3.37, but for fiscal 2012, during the last 7 days, the current Zacks Consensus Estimate jumped by 7 cents to $4.39.

Earning Surprises

DIRECTV produced an impressive earnings surprise of 9.45% over the trailing four quarter. However, in the last quarter, the company missed the Zacks Consensus Estimates by 3 cents or 4.11%.

The current Zacks Consensus Estimates for both the ongoing quarter and the upcoming quarter remained at breakeven (essentially a proxy for future earning surprises), respectively, while for fiscal 2011, the Zacks Consensus Estimate downside risk is 0.59% and for fiscal 2012, the growth rate is 0.46%.

Our Recommendation

DIRECTV remains one of the few pay-TV service providers that are still generating commendable video subscriber growth. A strong fundamental along with huge subscriber growth across all its segments make it quite popular within its peer group.

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

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

About Earnings Estimate Scorecard

Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at: http://www.zacks.com/education/

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