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Brean Murray Reiterates Directv (DTV) As 'Buy', $57 PT

 March 28, 2012 02:52 PM

Brean Murray, Carret & Co. analyst Todd Mitchell reiterated his "Buy" rating and $57 price target on shares DirecTV (NASDAQ:DTV), saying the company was the most intact capital return story.

The brokerage raised its 2012 EPS estimate for DTV to $4.28 from $4.15, while maintaining its 2013 estimate of $5.17.

Shares of DTV have underperformed despite fundamental outperformance and aggressive capital returns. Mitchell believes this is a great misconception about satellite's positioning in the coming transition to an over-the-top (OTT) delivered TV Everywhere model.

The analyst believes satellite is actually better positioned than the MSO or the non-facilities based service providers to develop these services, and he expects this to be demonstrated with an aggressive push into OTT in 2013.

[Related -DIRECTV (NASDAQ:DTV): Tough Road Ahead As Costs, Competition Escalates]

In the meantime, capital intensity is falling and FCF growing with the pull back in gross adds, and LatAm continues to offer a growth profile than cannot be duplicated in the peer group.

Mitchell has updated his model for DirecTV's recent debt offering and to build out his quarterly estimates. He now expects 2012 consolidated revenue of $30.04 billion, a 10% increase from 2011, consolidated EBITDA of $7.54 billion, an 8% increase from 2011, 2012 EPS of $4.28, up 23% from $3.47 in 2011, and total FCF of $2.28 billion, up 13% from $2.02 billion.

The analyst's estimates reflect a modestly stronger outlook for U.S. sub growth (now projecting 400,000 net adds, up from his prior forecast of 250,000), revenue and EBITDA, and higher LatAm sub growth (now 1.85 million net adds, up from 1.65 million), but accompanied by lower total revenue and EBITDA due to pressure from Fx, lower ARPU mix, and higher content costs.

[Related -Harmonic Inc (HLIT): Profit From The Rise Of Mobile Video With This Stock]

DirecTV will be hosting a meeting in NYC tomorrow to focus on DirecTV Latin America (DLA) operations. Mitchell expects information on two key areas: DLA's prospects for sustaining growth at recent levels and the ultimate size of the market opportunity in the region, and initial plans for pursuing a wireless strategy in the region.

In regards to the former, the analyst expects the company to give increased transparency to regional operating businesses, market demographics, and competitive dynamics, and in regards to the latter, he would look for greater clarity with regards to spectrum acquisitions, required infrastructure build-out, and capital requirements.

Mitchell believes it is becoming increasingly apparent that DirecTV is preparing to launch an over-the-top (OTT) "TV Everywhere" service in 2013. DirecTV already has a robust OTT on-demand offering. However, he expects this service to be closer to BSkyB's new OTT offering, which is an all–encompassing content offering that repurposes each subs' profile for OTT delivery and authentication.

DirecTV has commented that it has acquired streaming rights to roughly "45%" of its relevant lineup (part of the high increase in programming costs in 2012), and that deals are best done for all of a content company's line-up at once, rather than ad hoc. DirecTV is expected to go through negotiations with Viacom and CBS in 2012 and Disney in 2013.

DTV is trading up 1.29% at $48.82 on Wednesday



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