Why Are DirecTV Investors Smiling?

Still trying to plan stage two as growth flattens, DirecTV (NASDAQ:DTV) is putting its energy into making shareholders happy. With its $5.2 billion in annual cash flow, the satellite provider is focusing on repurchasing stock and authorized a new $6 billion buyback program in February. Having already bought back $5.5 billion worth of its stock last year, the company will continue repurchasing shares at about $100 million a week.

“At the rate at which DirecTV is buying back stock, even with our relatively bearish forecasts, DirecTV simply looks too cheap,” analyst Craig Moffett said in a note to clients. Moffett upped  his recommendation on the stock from “market perform” to “outperform.”

However, as programming costs to pay content providers such as CBS (NYSE:CBS), Time Warner (NYSE:TWX), and Disney (NYSE:DIS) continue to increase, DirecTV will have to come with a new business strategy.

One option for chief executive officer Mike White as the satellite market matures is a big acquisition. Government regulations that prevent large telecom deals are keeping DirecTV quiet for the moment, but White has been eying both Netflix (NASDAQ:NFLX) and Hulu (NASDAQ:CMCSA). Another possibility, one that DirecTV would prefer, is acquiring a large cable company that would let it offer both TV and broadband service, but White told Bloomberg such a deal “would never be approved.”

White also has the option of combining forces with the second-largest satellite provider and current competitor, Dish Network (NASDAQ:DISH). Dish has not ruled out the possibility either. White says he may wait for a change in regulatory environment to start that process and is not likely to do it “under this administration.”

For now, expansion answers are coming from Latin America, where 12 million customers made up 18 percent of the company’s fourth-quarter revenue. Latin American revenue grew 42 percent in 2011 from a year earlier as U.S. revenue increased only 7.9 percent. “It’s a gem of a business opportunity,” White said. “The first thing I did when I got to DirecTV was say, ‘Let’s take a fresh look at strategy,’” he said. “I’m constantly evaluating all of our options. We look at everything.”