After first-quarter results showing a 19% fall in subscribers, against forecasts of a 4% increase, investors might want to write off DirecTV (DTV, $17.46) as just a “promising underperformer”, says Jack Hough on SmartMoney.com.
They shouldn’t. Firstly, the decline reflected tightened credit requirements for new subscribers. Secondly, it still added more subscribers than all its competitors combined. Finally, it is about to complete a satellite upgrade programme, which should cut capital expenditure and boost free cash flows more than three-fold to $2.2bn by 2008.
According to Yahoo!, consensus analysts’ forecasts are for compound earnings growth of 32% a year for the next five years. Yet DirecTV trades on a multiple of just 23.3 times current year earnings to December 2006. Worth a “fresh look”, says Hough; worth more than that, I say.