DirecTV Stock Value Justified Despite Looming Uncertainties

by Trefis Team
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Is DirecTV’s (NASDAQ:DTV) stock in trouble? That’s the question that might enter investors’ minds given recent events such as the potential for an NFL lockout and AT&T’s (NYSE:T) announced acquisition for T-Mobile. Some investors feel that DirecTV will ultimately become a takeover target for a larger telecom or media company and so AT&T’s deal takes one potential bidder out of the running. However, we believe that DirecTV’s outlook supports the stock’s current market price regardless of the these scenarios. DirecTV primarily competes with satellite pay-TV providers like Dish Network (NASDAQ:DISH) and cable companies like Comcast (NASDAQ:CMCSA) and Time Warner Cable (NYSE:TWC).

Our price estimate for DirecTV’s stock stands at $48.63, a premium of roughly 5% to market price.

Uncertainty Over the Stock

A recent article published in The Wall Street Journal notes a few key factors that might weigh on the stock going forward. These include the possibility of an NFL lockout and AT&T’s recently announced deal to acquire T-Mobile. The WSJ states:

AT&T’s planned acquisition of T-Mobile effectively kills the chance that the telecom company goes after DirecTV anytime soon. [1]

From a long-term perspective, this suggests that DirecTV might need a compelling bundled offering like mixing broadband with its pay-TV service in order to remain competitive against telecom and cable companies that can offer bundled services. DirecTV has had recent success in U.S. subscriber growth but could see this trend come under pressure going forward. As the pay-TV market saturates in the U.S., companies need to differentiate their services to gain subscribers.

The possibility of an NFL lockout affects DirecTV as it might have to refund fees charged to subscribers for its “NFL Sunday Ticket” package, and would still have to pay the licensing fee for the NFL broadcast. We recently examined this scenario in a recent article and concluded that the actual impact on DirecTV’s stock value is very limited (see our article What an NFL Lockout Would Mean for DirecTV).

.. And Don’t Forget Latin American Expansion

Given rapid growth in Latin America, DirecTV’s stock should be able to sustain its current value. The company has been expanding in the Latin American region and we estimate that this segment constitutes about 15% to DirecTV’s stock value. There is even the possibility that this number undervalues the region, given high capital expenditures (although declining) that we currently forecast. If these expenses stabilize sooner, the value of this division could further increase and lift our $48.63 price estimate for DTV stock.

So while we acknowledge there is some headline risk relating to DirecTV’s near term outlook given the AT&T deal and uncertainly over the NFL lockout, overall we believe that the stock is fundamentally on solid ground.

See our full analysis and $48.63 price estimate for DirecTV stock

  1. DirecTV Loses AT&T Safety Net, The Wall Street Journal, Mar 24 2011 []
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