DIRECTV Is One Great Company

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While its biggest competitor is embroiled in an M&A battle with giant Japanese banks and telecom juggernauts, DIRECTV (UNKNOWN: DTV.DL  ) continues to dominate at its core business. In the just-ended quarter, the company added another 583,000 subscribers in Latin America -- that small, extremely populous region of the world that other cable providers glossed over when glancing at their corporate-strategy edition Rand McNally. In the meantime, North American revenues are rising healthily as well, proving that the company not only gets customers in the door but upsells them as well. The market has rewarded it with new 52-week highs and a healthy valuation, but is there still room left to run? Let's take a look.

Earnings recap
DIRECTV revenues grew 8% in the first quarter to $7.6 billion, driven by the aforementioned Latin American growth and North American average revenue per user, or ARPU, improvements. Operating profit surged 11%, mainly due to the fact that the increased ARPUs in North America boost margins, softening the effects of the slimmer margins in Latin America. On the bottom line, DIRECTV brought in $1.43 per share -- a 34% increase over the year-ago quarter and far beyond analyst expectations. The EPS gain was a result of higher net income and the ongoing stock buyback.

The company is the industry leader, hands down. Direct competitor DISH Network (NASDAQ: DISH  ) is not a bad alternative, but has its hands tied with outstanding offers for both Sprint and Clearwire. If either acquisition goes through, the company will take on even more debt to add to its already substantial load -- a factor that will likely place valuation multiple pressure on it for some time. DIRECTV management has expressed interest in gaining spectrum assets and moving into the broadband field as well, but it has not limited its core business growth in the meantime. In my opinion, this is a big reason that DIRECTV has been such a strong performer over the past year.

Room for more?
The stock is up more than 20% in the past 12 months, and just this week tacked on six points. Yet it still trades at under 11 times forward earnings -- far under DISH's 17.2 times forward earnings. On an EV/EBITDA basis, the company trades at a 6.75 multiple.

As far as continued growth is concerned, there is still plenty runway. DIRECTV owns 93% of SkyTV Brasil, 41% of SkyMexico, and 100% of Panamericana. Each is a leading player in its respective regions, and all are big-time contributors to DIRECTV Latin America's 16% year-over-year revenue growth. Even with the posted gains, Pay TV penetration rates remain far lower than in the U.S.

Concerns are limited, but they consist of continued currency issues in Venezuela (most recently a $155 million impairment) and competition from Internet streaming services

The company has plenty of cash and a comfortable amount of debt, leaving plenty of room for further stock buybacks and potential acquisitions down the line. Given its current valuation and superior market position, I believe DIRECTV still has room to run and is a great pick for the risk-averse investor.

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Related Tickers

12/31/1969 7:00 PM
DTV.DL $0.00 Down +0.00 +0.00%
DirecTV CAPS Rating: ***
DISH $55.34 Up +0.41 +0.74%
DISH Network CAPS Rating: **