DIRECTV (DTV) – the largest satellite TV operator in the U.S. – is slated to release its third-quarter 2014 results on Nov 6, before the opening bell.
Last quarter, the company had delivered a positive earnings surprise of 4.61%. Interestingly, DIRECTV has surprised earnings in all of the last four quarters, with an average beat of 11.36%. Let’s see how things are shaping up for this announcement.
Factors Likely to Influence this Quarter
DIRECTV has improved its subscriber quality by shrinking the proportion of subscribers with low credit ratings. Moreover, higher ARPU (average revenue per unit), aggressive share repurchase plans, the launch of TV Everywhere services and strong margin expansion in the U.S. coupled with strong subscriber addition in the Latin American region may continue to boost business moving ahead.
However, competitive threats to the pay-TV industry from large telecom and cable TV operators, easy availability of low-cost video streaming companies like Netflix, Inc. (NFLX) and Hulu, stringent credit measures and lower promotional schemes will tend to increase customer churn, going forward. Moreover, rising programming costs, foreign exchange currency risks and sluggish Latin American operations may act as headwinds for DIRECTV in the near future.
Furthermore, unlike other cable and large telecom operators, DIRECTV lacks the triple-pay service in its product portfolio which we believe is a major disadvantage for the company.
Earnings Whispers?
Our proven model does not conclusively show that DIRECTV is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. Unfortunately, that is not the case here as elaborated below.
Zacks ESP: DIRECTV has an earnings ESP of +0.80%. This is because the Most Accurate estimate stands at $1.26 while the Zacks Consensus Estimate is pegged at $1.25.
Zacks Rank: DIRECTV has a Zacks Rank #4 (Sell). We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are some companies to consider as our model shows these have the right combination of elements to post an earnings beat this quarter:
Lumos Networks Corp. (LMOS) has an earnings ESP of +15.39% and a Zacks Rank #2 (Buy).
DragonWave Inc. (DRWI) has an earnings ESP of +16.67% and a Zacks Rank #3 (Hold).
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