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DIRECTV (DTV), Comcast Corporation (CMCSA): The Future of This Market May Surprise You

It is always good news for investors when they own a company that sells a highly addictive product, and many parents can attest to the addictive nature of cable television. Investors have wondered if there is a lack of innovation in the industry, and perhaps fledgling companies like Netflix, Inc. (NASDAQ:NFLX) will be able innovate toward a new paradigm of receiving entertainment by undercutting the old guard with lower prices and on-demand delivery. However, any objective analysis of consumer behavior seems to show that this trend is a very long way off, due to the convenience of cable and satellite TV and the greater selection available, particularly in sports and local programming. This likely means that the future of television will likely be the same as its recent past, and that is very good for investors in the pay TV industry.


If nothing changes the pay TV industry will continue to be a cash cow well into the foreseeable future. Below are five pay TV providers that are poised to continue profiting from the addictive nature of the boob tube are analyzed in depth.  DIRECTV (NASDAQ:DTV seems to be the most attractive for a variety of reasons that are outlined below.

Comcast Corporation (NASDAQ:CMCSA) is not only a cable company, but also one of the world’s leading media and entertainment companies. Comcast Corporation (NASDAQ:CMCSA) owns several cable TV channels, including USA, E!, CNBC, MSNBC, Bravo, Oxygen, Syfy, Versus, The Golf Channel, G4 and Style. It also owns two major broadcast networks, NBC and Telemundo, plus many television stations, a major film studio, and the Universal theme park. Comcast Corporation (NASDAQ:CMCSA) has 22 million subscribers not only for cable, but also for phone and internet. When all of these assets are listed it is difficult to see any threat from technology changes that the company could not readily adapt to. For such a huge corporation with a market capitalization of over $90 billion, earnings per share growth has still been robust over the past five years at over 22%. Comcast seems reasonably valued at the present time and trades for 17.8x TTM earnings. Committing money to the name at the current price would not be a bad investment, but the valuation is not as attractive as some other names in the sector.

Cablevision Systems Corporation (NYSE:CVC) has had a difficult run over the past several years and still trades for a price well below where it was trading in 2011. The company has 3.2 million subscribers, but has struggled to retain profitability and thus trades at a very high 117x TTM earnings. The company is concentrated in the New York metropolitan area, but also broadcasts in Montana, Wyoming, Colorado and Utah.

The earnings trend of Cablevision Systems Corporation (NYSE:CVC) has been very negative over the past six quarters, as revenue has grown at a negative rate and operating expenses have spiked, squeezing profitability to nearly zero.  Bottom fishing is never a good idea, and given that Cablevision Systems Corporation (NYSE:CVC)’s DCF valuation is more or less in-line with peers the market appears to be insufficiently discounting the poor performance for this company.

DISH Network Corp (NASDAQ:DISH) is a major satellite TV operator with 15 owned or leased in-orbit satellites and 14 million subscribers in the United States. Satellite TV still accounts for approximately 30% of pay TV subscribers, and DISH Network Corp (NASDAQ:DISH) and DIRECTV (NASDAQ:DTV) operate as a duopoly, roughly splitting this market. While DISH Network Corp (NASDAQ:DISH) has an attractive business model, the current market price does not appear that attractive compared to its growth. It is nearly fully discounted by discounted cash flow analysis and five-year earnings per share growth has been sluggish at -3.4%

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