Can DirecTV Continue to Surge Higher?

With shares of DirecTV (NASDAQ:DTV) trading around $75, is DTV an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

DirecTV provides digital television entertainment in the United States and Latin America. The company engages in acquiring, promoting, selling, and distributing digital entertainment programming primarily through satellite to residential and commercial subscribers. A rising number of consumers are opting for satellite services due to the reduced costs and increased coverage offered. DirecTV is poised to capitalize on the increased entertainment demand from consumers in the United States and Latin America.

DirecTV CEO Mike White has said that the upcoming merger between Comcast (NASDAQ:CMCSA) and Time Warner Cable (NYSE:TWC) needs to be closely observed by regulators, though DirecTV isn’t sure what stand it will take on the huge consolidation. “Certainly, if the deal is approved as proposed, it clearly represents an unprecedented media concentration in one company. I guess I think the challenge in terms of what posture we take in Washington, D.C., we haven’t decided yet. But I think one of the challenges is to try and ensure that it is appropriately scrutinized in some kind of unique ways than you might traditionally look at,” White said during a conference call after DirecTV posted its fourth-quarter results. “I think it certainly creates some significant changes in the competitive landscape that we need to think hard about.”

DirecTV’s fourth-quarter results showed that the company had 38 million satellite TV subscribers at the end of 2013. Full-year revenue rose 7 percent to $32 billion and profit grew 8 percent to $8.1 billion. Last week, Comcast, the largest cable provider in the country, announced its intention to buy Time Warner Cable. If that deal is allowed by regulators to pass, it will give Comcast 30 million subscribers, or 30 percent of the pay-TV market, and a presence in 19 out of 20 markets in the United States. The new Comcast will be far and away the dominant company in both cable and broadband Internet service in the U.S., which has led many to worry about the effect such a monopoly could have on consumers.

T = Technicals on the Stock Chart Are Strong

DirecTV stock has been trending higher in recent years. The stock is currently trading near all time highs and looks poised to continue this path. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, DirecTV is trading above its rising key averages which signal neutral to bullish price action in the near-term.

DTV

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of DirecTV options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

DirecTV options

23.19%

0%

0%

What does this mean? This means that investors or traders are buying a very small amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

March Options

Flat

Average

April Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very small amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on DirecTV’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for DirecTV look like and more importantly, how did the markets like these numbers?

2013 Q4

2013 Q3

2013 Q2

2013 Q1

Earnings Growth (Y-O-Y)

-0.78%

42.22%

8.26%

12.15%

Revenue Growth (Y-O-Y)

6.70%

6.26%

6.59%

7.58%

Earnings Reaction

2.93%

-1.3%

-2.02%

6.88%

DirecTV has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have been pleased with DirecTV’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has DirecTV stock done relative to its peers, Dish Network (NASDAQ:DISH), Comcast (NASDAQ:CMCSA), Time Warner Cable (NASDAQ:TWC), and sector?

DirecTV

Dish Network

Comcast

Time Warner Cable

Sector

Year-to-Date Return

9.21%

2.16%

-1.24%

4.10%

4.55%

DirecTV has been a relative performance leader, year-to-date.

Conclusion

DirecTV is a digital television entertainment company that offers satellite services to consumers and companies across the nation. The company CEO Mike White has said that the upcoming merger between Comcast and Time Warner Cable needs to be closely observed by regulators. The stock has been trending higher in recent years and is now trading near all time highs. Over the last four quarters, earnings and revenues have been rising, leaving investors pleased about recent earnings announcements. Relative to its peers and sector, DirecTV has been a relative performance leader in the year to date. Look for DirecTV to OUTPERFORM.

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