Why You Should Own the Leader in Pay TV: DIRECTV (DTV)

Rockin’ in the free world
Revenue from DIRECTV’s U.S. segment was up nearly 5%, to $6.32 billion, for the quarter. The company was able to add subscribers in the quarter, though that’s only a fraction of the growth taking place in Latin America. The main source of revenue growth for DIRECTV’s U.S. business was its continued effort in increasing ARPU in the mature market. For the quarter, ARPU rose from$101.40 in 2011’s quarter to $105.20. ARPU was up due to advanced service fees, box lease revenue, and premium packaging.

Average monthly churn (subscribers leaving the service) fell to 1.43% compared to 1.52%. This is in direct conflict with the trend among cable service providers, which are seeing their TV customers flee services in favor of streaming options.

DIRECTV U.S. ended 2012 with a 1% net increase in subscribers.

Looking forward
Though programming fees will rise approximately 8% going forward (part of the reason the stock fell on the day) and currency threats remain substantial in Latin America, DIRECTV will continue to grow based on the same fundamentals: subscriber growth and ARPU enhancements. I find the stock’s near three-point drop on Thursday to be completely unwarranted and see it as buying opportunity for a stock otherwise destined for greater things.

DIRECTV has a sound management team, both in the U.S. and Latin America. It is navigating the new content distribution environment much better than its cable counterparts. I also believe that DIRECTV is a more transparent business compared to its rival Dish Network because it is sticking to its core business — and doing it very well. Dish has a risky, risky investment on its hands with a more than $4 billion venture into spectrum acquisition and the wireless network world. Dish will face continued pressure from telecom giants and possible government intervention — two factors that would keep me away from the stock for the time being.

I have covered DIRECTV a number of times now and I have no new opinion on the company other than that it will continue to outperform. Last year, the stock rose nearly 20%, yet it remains fairly valued to undervalued at less than 10 times next year’s forecasted earnings. DIRECTV has been and will be a great long-term hold for the risk-averse investor.

The article Why You Should Own the Leader in Pay TV originally appeared on Fool.com.

Fool contributor Michael B. Lewis has no position in any stocks mentioned, and neither does The Motley Fool.

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