In recent months, DirecTV (NASDAQ: DTV) has shown that pay television is recession-resistant; indeed, the company has been dishing up subscriber growth, said Richard Moroney.
In his Dow Theory Forecasts, the advisor explains why the satellite-TV system operator is among those select stocks consider to be "Focus List" buys -- the top long-term buy rating in their model portfolio.
According to Moroney, in the nearly 15 years since DirecTV sold its ?rst satellite-television system, the company has grown to serve more than 18 million U.S. subscribers, or 16% of the country’s households. DirecTV also operates in Latin America, where it generates 12% of revenue.
DirecTV’s broad range of product offerings contributes to a brighter growth picture than that of most cable- and satellite-television providers, he said.
"Consensus estimates project DirecTV’s per-share pro?ts will rise 10% this year and 40% in 2010. No other major competitor is expected to approach such growth," Moroney said.
"In the March quarter, sales rose 7% and the company added more than 460,000 U.S. subscribers, up 67% from net additions in the year-earlier period and the biggest quarterly increase in four years," according to Moroney.
"In comparison, net subscriber additions fell 38% at Time Warner Cable and 43% at Comcast during the same period. Rival satellite provider Dish Network lost subscribers, most likely to DirecTV."
Moroney said, "Fueling DirecTV’s growth were aggressive promotional offers and a marketing partnership with AT&T that began Feb. 1."
"Hefty subscriber-acquisition costs weighed on per-share earnings, down 38% to $0.20, short of the consensus by $0.12. While gaining new subscribers is expensive, pro?t margins fatten when they renew," he added.
"The company’s rate of U.S. defections, or churn, reached a ten-year low of 1.33% in the quarter. That low churn partly reflects DirecTV’s policy of reviewing the credit history of perspective customers — and it should boost results in coming quarters."
According to him, DirecTV owes some of its success to differentiating its product from rivals. The company offers 130 national high-de?nition TV channels and such advanced services as digital video recording and video on demand.
"In May, DirecTV agreed to merge with Liberty Entertainment Group, a unit being spun off from Liberty Media Interactive," Moroney said.
"The resulting company gains control of Liberty Media’s 54% stake in DirecTV but also inherits net debt of roughly $2 billion. The deal simplifies DirecTV’s ownership structure and could possibly pave the way for future deals."
Liberty Media CEO Greg Maffei said a potential sale of DirecTV would be easier now, though the company can succeed on its own, according to him.
"Mergers between telephone and satellite companies could make sense, allowing them to better compete against the 'triple play' bundles of phone, Internet, and television service offered by cable providers."
"Management now expects to add more than 1 million net U.S. subscribers this year, boosting the base by at least 5%," Moroney said.
"For the rest of 2009, DirecTV plans to place less emphasis on promotions, projecting 2% to 3% growth in average revenue per user after less than 1% growth in the March quarter. DirecTV is a Focus List Buy."
