(DTV) DIRECTV 2011 Fourth Quarter Earnings Scorecard

DIRECTV (DTV) reported excellent fourth quarter 2011 financial results, where both earnings per share (EPS) and total revenue beat the Zacks Consensus Estimate. The solid result was attributable to double-digit revenue growth, significant margin expansion and record net customer additions.

Fourth Quarter Highlights

Total revenue in the reported quarter came in at $7,463 million, up 12.7% year over year and ahead of the Zacks Consensus Estimate of $7,398 million.

Quarterly GAAP net income was $718 million or $1.02 per share compared with $618 million or 74 cents per share in the year-ago quarter. Quarterly pro forma EPS of $1.02 per share was significantly ahead of the Zacks Consensus Estimate of 91 cents per share.

Quarterly operating profit before depreciation & amortization (OPBDA) was $1,782 million, up 5.8% year over year. Operating profit in the reported quarter stood at $1,214 million, up 14.3% year over year.

Agreements of Analysts

Over the last 7 days, out of the 11 analysts covering the stock, only one analyst revised the estimate upward for the first quarter of 2012, while one downward revision was witnessed for the same period. However, for the second quarter of 2012, out of the 11 analysts, none raised the EPS estimates but two analysts slashed the estimates.

For fiscal 2012, out of the 17 analysts, only one analyst raised the estimate while three moved in the opposite direction. Similarly, for fiscal 2013, only two out of the 13 analysts increased the estimates but one reduced the same.

Over the last two quarters, DIRECTV has gained huge subscriber growth, mainly driven by the NFL Sunday ticket promotion. So, we believe that with the end of NFL season, most analysts prefer to remain indifferent toward EPS growth for the upcoming quarters.

Currently, the Zacks Consensus EPS Estimate for the first quarter of 2012 is pegged at $1.06.  The projected annual growth rate is 29.71%. Similarly, for the second quarter of 2012, the current Zacks Consensus EPS Estimate of $1.15 indicates a year-over-year gain of 26.87%.

Magnitude of Estimate Revisions

During the last 7 days, the current Zacks Consensus Estimate for the first quarter of 2012 inched up by a penny to $1.06 from the earlier estimate, while for the second quarter of 2012; the current Zacks Consensus Estimate remained flat at $1.15 in the last 7 days. Similarly, for fiscal 2012, during the last 7 days, the current Zacks Consensus Estimate remained unchanged at $4.37, but for fiscal 2013, during the last 7 days, the current Zacks Consensus Estimate fell by a couple of cents to $5.35.

Earning Surprises

DIRECTV produced an impressive earnings surprise of 7.63% over the trailing four quarter. In the last quarter, the company beat the Zacks Consensus Estimates by a whopping 11 cents or 12.09%. 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 2012 and 2013, the Zacks Consensus Estimate downside risks are 1.14% and 1.68%, respectively.

Our Recommendation

DIRECTV remains one of the few pay-TV service providers that are still generating commendable video subscriber growth. The company is continuously upgrading its customers with premium plans. We believe that such initiatives taken by DIRECTV will certainly drive its top-line growth going forward. Moreover, the company recently announced a share repurchase plan worth $6 billion, which will also boost its EPS in the forthcoming quarters.

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 threat to the overall pay-TV industry. We, thus, maintain our long-term Neutral recommendation onDIRECTV.

Currently, DIRECTV has a Zacks#3 Rank, implying a short-term Hold rating on the stock.

About Earnings Estimate Scorecard

As a PhD from MIT, Len Zacks 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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