We expect the largest satellite TV operator in the U.S., DIRECTV (DTV), to beat expectations when it reports fourth-quarter 2013 results on Feb 20, before the market opens.
Why a Likely Positive Surprise?
Our proven model shows that DIRECTV is likely to beat earnings because it has the right combination of two key ingredients.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +0.78%. This is a meaningful and leading indicator of a likely positive earnings surprise.
Zacks Rank: DTV currently has a Zacks Rank #3 (Hold). Note that stocks with Zacks Ranks of #1 (Strong Buy), 2 (Buy) or 3 (Hold) have a significantly higher chance of beating earnings.
The combination of DIRECTV’s Zacks Rank #3 and +0.78% ESP makes us confident of a positive earnings beat this release.
What is Driving the Better-Than-Expected Earnings?
We expect DIRECTV’s three-edged strategy for the U.S. market, where pay-TV penetration is near saturation, to reap benefits. These strategies include streamlining its cost structure through better negotiation with the content providers, introducing online video streaming (TV Everywhere) facilities and focusing more on becoming a premium brand in the U.S. pay-TV market.
DIRECTV has improved its subscriber quality – i.e. shrank the proportion of subscribers with low credit ratings. With a higher-quality subscriber base, DIRECTV has implemented programming package price increases, and higher HD and DVR equipment service and lease fees in the U.S., driving higher ARPU, which resulted in margin expansion. Notably, the company added a net 139,000 subscribers in the U.S. compared with a mere 67,000 in the year-ago quarter.
Other Stocks to Consider
Other companies you may want to consider on the basis of our model which shows that these have the right combination of elements to post an earnings beat this quarter include:
Dish Network Corp. (DISH) with earnings ESP of +25.00% and Zacks Rank #3.
Cablevision Systems Corporation (CVC) with earnings ESP of +33.33% and Zacks Rank #2 (Buy).
TiVo Inc. (TIVO) with earnings ESP of +25.00% and Zacks Rank #3.
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