Why Is Buffett A DIRECTV subscriber?

BERKSHIRE HATHAWAYAccording to Berkshire Hathaway’s 13F filing for the second quarter, Warren Buffett’s holding company increased its stake in DIRECTV (NASDAQ:DTV) by 24% between the beginning of April and the end of June. Berkshire Hathaway owned 28 million shares at the end of the second quarter, allowing the stock to squeak into its top ten holdings according to the 13F (find more of Warren Buffett’s favorite stocks). Berkshire had initiated a position last summer, increased it dramatically in the fourth quarter of 2011, and had added shares in the first quarter of this year as well. DIRECTV was a favorite of other investors as well: D.E. Shaw, a hedge fund named after its billionaire founder, substantially increased its own position in the stock to 3 million shares (see more stock picks from D.E. Shaw).

DIRECTV’s 10-Q for the second quarter showed a significant increase in the company’s revenue, rising to $7.2 billion from $6.6 billion in the second quarter of 2011 (an increase of 9%). Net income was about even, but a fairly large reduction in the number of shares outstanding- 655 million, down from 767 a year earlier- meant that earnings per share actually increased by 20%. This figure is about the same when looked at for the first half of 2012: EPS came in at $2.16, compared to $1.76 in the first half of last year. Over the first six months, the $2.6 billion the company spent repurchasing shares amounted to nearly all of its $3 billion in cash flow from operations. We’re not sure DIRECTV will be able to maintain this degree of commitment in returning cash to shareholders, but it’s encouraging to know that management is focused on that area.

DIRECTV now has a trailing P/E of 14, and while we wouldn’t expect too much growth in its business going forward we do think that continued buybacks could drive this ratio down further if income holds steady. The forward multiple based on sell-side expectations is 10, which makes the company look like an even better value on a quantitative basis, and looking out further the five-year PEG ratio is 0.8. DIRECTV does not pay a dividend yield, but given the buybacks it certainly doesn’t need to do so. The stock also carries a beta of 1.0, and has been in line with that statistical trend over the last year with a 24% return versus the S&P 500’s 22%.

The company’s closest peers are Comcast Corporation (NASDAQ:CMCSA) and DISH Network Corp. (NASDAQ:DISH). We looked at Comcast earlier this week. The larger cable company, which also owns a number of media properties through NBC Universal, trades at 20 times trailing earnings and 16 times forward earnings estimates, notably higher than DIRECTV in both cases. However, Comcast has seen more growth in its business recently, reporting a 32% rise in earnings last quarter compared to the same period a year ago. DISH saw a fall in earnings of a similar magnitude, and posts trailing and forward P/E multiples of 11. It is cheaper than DIRECTV, but we are more worried about its business. Two additional peers are Time Warner Cable Inc (NYSE:TWC) and Viacom, Inc. (NASDAQ:VIAB), and these companies trade at small premiums compared to DIRECTV. Time Warner, which saw modest earnings growth in its most recent quarter versus the second quarter of 2011, trades at 17 times trailing earnings; Viacom’s business has declined over the last year yet still trades at a higher multiple than DIRECTV does (trailing P/E of 15). We’d rather invest in DIRECTV than in Comcast or Dish Network, but it’s possible that Time Warner Cable makes sense as an investment at a slightly higher earnings multiple.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

The 5 Most Expensive Cars To Insure in the World

The 10 Most Common Genetically Modified Foods

10 Self-Made Billionaires Who Came From Nothing

The 10 Most Expensive Cities to Live in North America

The 13 Most Expensive Headphones in the World to Represent

The Top 20 Wealthiest Soccer Teams in 2014

4 BuzzWorthy Cannabis Stocks And Some Smoking Derivative Plays

The 10 Healthiest Fast Food Chains in America to Dine At

The 5 Most Expensive Cat Food Brands You Can Spoil Your Kitty With

The 6 Best eCommerce Platforms for Small Businesses

The 10 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

Top 6 Cities For The Ultra Rich to Live in Comfort

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

How to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!