DIRECTV (DTV) is set to unveil its second-quarter 2012 results on Thursday, August 2, 2012, before the opening bell. The current Zacks Consensus Estimate for the second quarter is pegged at $1.14 per share, representing annualized growth of 24.86%.
With respect to earnings surprise over the trailing four quarters, DTV has outperformed the Zacks Consensus Estimate in three of the last four quarters. The average earnings surprise was a positive 5.01%, implying that the company has outdone the Zacks Consensus Estimate by the same magnitude over that period.
First-Quarter Recap
On May 8, 2012, DTV reported its first quarter 2012 results. Quarterly GAAP net income was $731 million or $1.07 per share compared with $674 million or 85 cents per share in the year-ago quarter. Quarterly EPS of $1.07 per share were, however, in line with the Zacks Consensus Estimate.
Total revenue in the reported quarter came in at $7,046 million, up 12.0% year over year, and slightly ahead of the Zacks Consensus Estimate of $7,037 million. This upsurge was mainly buoyed by the combined effect of net customer additions and increased average revenue per user (ARPU) in the U.S. segment.
Agreement of Estimate Revisions
Over the past 30 days, only 1 out of the 16 estimates on DIRECTV has been upwardly revised while 1 was downwardly revised for the second quarter of 2012. Likewise, for the third quarter of fiscal 2012, none of the 16 estimates were revised upwards but four were revised downwards.
For fiscal 2012, there has been no upward revision in estimates while 5 out of 17 estimates moved in the opposite direction over the last 30 days. Similarly, for fiscal 2013, only 1 out of the 14 estimates were revised upward while 3 moved downwards.
The analysts remain apprehensive about the subscriber loss in the U.S. market coupled with higher programming cost, which could impact its margin. Moreover, most of the analysts have revised their estimates downward based on the belief that recent disagreement with Viacom Inc. (VIAB) over programming fees could lead to increased churn rate in future.
Magnitude of Estimate Revisions
Relative to these downward revisions of estimates, during the last 30 days, the current Zacks Consensus Estimate for the second quarter of 2012 was a penny higher than the previous estimate of $1.13. However, for the third quarter of 2012, the current Zacks Consensus Estimate was 2 cents below the previous estimate of 98 cents per share.
For fiscal 2012, the current Zacks Consensus Estimate was 4 cents below the previous estimate of $4.34 per share. Likewise, for fiscal 2013, the current Zacks Consensus Estimate was 5 cents below the previous estimate of $5.31 per share.
Earning Surprises
The current Zacks Consensus Estimates for the ongoing quarter contains 1.75% upside potential while for the upcoming quarter, it is reflecting a 3.13% downside risk (essentially a proxy for future earning surprises). Similarly, for fiscal 2012, the current Zacks Consensus Estimates’ contains a downside risk of 1.17%, while fiscal 2013 estimates contain a downside risk of 2.66%.
Our Recommendation
Strong fundamentals coupled with huge subscriber and ARPU growth across all its segments make the company quite popular within the pay-TV industry.
However, within the satellite TV industry, DIRECTV is facing stiff competition from its nearest rival DISH Network Corp. (DISH). Furthermore, U.S. telecom giants, AT&T Inc. (T) and Verizon Communication Inc. (VZ) are increasingly rolling out their fiber-based network to provide video services. Additionally, Internet video streaming companies like Netflix Inc. (NFLX), Hulu, YouTube have become major threats to the overall pay-TV industry.
We, thus, maintain our long-term Neutral recommendation for DIRECTV. Currently, the shares of DIRECTV maintain a Zacks #3 Rank, implying a short-term Hold rating.
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