Is DIRECTV a Bargain Here?

With shares of DIRECTV (NASDAQ:DTV) trading at around $54.16, is DTV an OUTPERFORM, WAIT AND SEE or STAY AWAY? Lets analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stocks Movement

Latin America is the key for DIRECTV, and the potential in Latin America is high. But will it be enough? Lets take a look at some positives and negatives for DIRECTV.

Positives:

  • Consistent net subscriber additions in the United States and Latin America
  • Increasing average-revenue-per-user in the U.S.
  • Improved operating margin
  • Aiming for strategic acquisition
  • Company is confident in its high expectations
  • Consistent revenue and EPS improvements on an annual basis
  • Stock weathered 2008/2009 much better than peers
  • Strong cash flow
  • Company buying back shares
  • Stifel Nicolaus recently initiated a Buy rating and set a $65 price target

Negatives:

  • United States market not growing as fast as in previous years
  • Global economic concerns
  • Large programming costs
  • Increased competition
  • Currency devaluation in Venezuela (3.5 percent of revenue comes from Venezuela)
  • Tighter credit standards (this can also be looked at as a positive)
  • Three large insider sales over the past month (three different insiders)

Lets take a look at some comparative numbers. The chart below compares fundamentals for DIRECTV, Comcast Corporation (NASDAQ:CMCSA), and Dish Network Corp. (NASDAQ:DISH). DIRECTV has a market cap of $31.32 billion, Comcast has a market cap of $107.59 billion, and Dish Network has a market cap of $17.11 billion.

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DTV

CMCSA

DISH

Trailing P/E

11.93

17.88

26.79

Forward P/E

9.47

15.04

15.68

Profit Margin

9.92%

9.91%

4.46%

ROE

N/A

12.06%

N/A

Operating Cash Flow

$5.63 Billion

$14.85 Billion

$2.01 Billion

Dividend Yield

N/A

1.90%

N/A

Short Position

2.60%

1.50%

1.30%

 

Lets take a look at some more important numbers prior to forming an opinion on this stock…

E = Equity to Debt Ratio Is Strong

The debt-to-equity ratio for DIRECTV is stronger than the industry average of 2.60.

Debt-To-Equity

Cash

Long-Term Debt

DTV

0.97

$1.90 Billion

$17.53 Billion

CMCSA

0.61

$12.42 Billion

$40.46 Billion

DISH

165.97

$7.24 Billion

$11.89 Billion

 

T = Technicals Are Strong

DIRECTV has performed well over the past three years. However, the past month has been weak.

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1 Month

Year-To-Date

1 Year

3 Year

DTV

-1.55%

7.93%

11.06%

52.29%

CMCSA

0.22%

9.21%

39.03%

135.00%

DISH

7.65%

3.96%

23.70%

96.06%

 

At $54.16, DIRECTV is trading below all its averages.

50-Day SMA

52.66

100-Day SMA

51.83

200-Day SMA

51.30

 

E = Earnings Have Been Strong

Revenue and earnings have been impressive on an annual basis.

2008

2009

2010

2011

2012

Revenue ($)in billions

19.69

21.56

24.10

27.23

29.74

Diluted EPS ($)

1.37

0.95

2.30

3.47

4.58

 

When we look at the previous quarter on a year-over-year basis, we see improvements in revenue and earnings. We also see improvements in revenue and earnings on a sequential basis.

12/2011

3/2012

6/2012

9/2012

12/2012

Revenue ($)in billions

7.46

7.05

7.22

7.42

8.05

Diluted EPS ($)

1.01

1.07

1.09

0.90

1.52

 

Now lets take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

T = Trends Might Support the Industry

There is too much competition for any company to thrive without constantly looking over its shoulder. However, DIRECTVs presence in Latin America helps it a great deal.

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Conclusion

DIRECTV is one of the few stocks throughout the broader market that has the potential to hold its own in a bear market. And if the market rebounds, then DIRECTV should continue to perform well. Though there are risks, positives outweigh negatives.

DIRECTV is an OUTPERFORM.

Using a solid investing framework such as this can help improve your stock-picking skills. Dont waste another minute click here and get our CHEAT SHEET stock picks now.

Disclosure: All content posted represents my opinion and views and should never be considered professional advice. You should do your own research and consult with a professional financial advisor before making any investment decisions. I do not have a position in this stock. I am currently short technology, financials, the Russell 2000, and the euro.

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