DirecTV Predicts Stronger Growth - Analyst Blog

DIRECTV (DTV), the largest satellite TV service provider in the U.S., projected accelerating subscriber gains for the fourth quarter of 2010 and stronger growth by 2013.

DIRECTV expects to add a net 200,000 U.S. subscribers in the fourth quarter based on increasing customer demand. During third quarter 2010, DIRECTV had net subscriber additions of 174,000 compared with 136,000 in the year-ago quarter. As of September 30, 2010, DIRECTV U.S. had 18.93 million subscribers, up 2.7% year over year.

By 2013, DIRECTV expects to boost its earnings to $5 a share on sales of $30 billion, up from about 27 million at present. The U.S. operating profit before depreciation and amortization will grow in the low-to-mid single digits in 2011 and the mid- to-upper single digits in 2012 and 2013. The company also predicted sales and earnings growth of 20% for Latin America next year, with both increasing in the low-to-mid teens in 2012 and 2013.

The company is targeting mainly the high-end customers, who are willing to pay for its costly HD, DVR and interactive services and premium programs. Hence, the churn rate of DIRECTV is very low. DIRECTV has initiated a massive marketing drive to attract customers to its exclusive programming. This strategy paid off as subscribers are opting more for high-end HD-DVR and whole-room DVR services.

The most surprising fact is that DIRECTV is generating net subscribers addition sequentially, when other large pay-TV operators like cable TV giant Comcast Corp. (CMCSA), Time Warner Cable Inc. (TWC), Cablevision Systems Corp. (CVC), and its closest rival DISH Network Corp. (DISH) are sequentially losing basic video customers.

We believe, this fabulous performance was the combined result of effective customer screening, target marketing, and avoiding disputes with content manufacturers and media companies.

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

 
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