Do you know anyone who doesn’t have something negative to say about the cable or satellite company that provides the video entertainment feed into their home? For most consumers, subscription video entertainment in our homes is somewhat of an ironic situation because most of us are unhappy with the service we receive and the prices we pay; but we would never consider, even for a moment, living without it. We love the content but hate the provider and, on a regular basis, many who have the option to will switch back and forth between cable and satellite providers. Well, if I don’t have to like the company in order to like and buy their products, then I shouldn’t have to like them to make a profit from them either.
Three Names Almost Every American Knows
Dish Network Corp (NASDAQ:DISH), DIRECTV (NASDAQ:DTV) and Comcast Corporation (NASDAQ:CMCSA) are three of the nation’s major providers of subscription entertainment services into our homes and there are probably very few households in the country where those names are not well known. Two appear to provide an opportunity for investors to recover some of the money being sent to these businesses each month by owning a piece of them; one does not.
A Difficult Position for One
Dish Network Corp (NASDAQ:DISH) is the smallest of the three businesses being discussed and is having difficulty maintaining their already diminished foothold in the market. Even though customer retention is a challenge for all three of these businesses, the majority of subscriber growth is taking place within Comcast Corporation (NASDAQ:CMCSA) and DIRECTV (NASDAQ:DTV), and Dish Network is falling behind. Over the last five years Dish Network has only managed to grow its sales at an annualized rate of 7.9%, well below the growth rate of its competitors.
As this business is currently valued at a forward P/E ratio of 15.28 with a forward 5-year projected earnings growth rate of only 2.6%, it seems to be exorbitantly priced in relationship to its future prospects. While income investors might be tempted by the attractive 5.28% dividend yield, they would be well served to weigh the 121% payout ratio as well as the minimal amount of shareholder equity held within the business.
A Better Prospect for Another
With a market capitalization almost twice that of Dish Network, the market clearly sees the superior potential of DIRECTV as compared to its competitor in satellite delivered home video entertainment. When reviewing the current valuations and forward growth prospects, it is not difficult to see why.