Best Ideas portfolio holding DirecTV (DTV) released better-than-expected fourth-quarter results Thursday. Revenue in the quarter advanced 7%, while operating profit before depreciation and amortization (OPBDA) jumped 6%. Though we would prefer to see profits advance at a faster pace than revenue, both the top-line and bottom-line numbers beat the consensus forecast. The firm’s $1.53 per share in earnings during the period was an impressive $0.24 better than the consensus forecast, largely contributing to the strong stock price performance after the release. For all of 2013, DirecTV hauled in $2.61 billion of free cash flow, about 8.2% of revenue and a 14% increase from the same period a year ago. We liked the better-than-expected performance and strong cash-flow generation and have no qualms with the company’s new share repurchase program of $3.5 billion, especially given the company’s current underpricing. View how we think about share buybacks here. Though management qualified the near term with macroeconomic concerns and foreign currency headwinds, DirecTV’s commentary about its growth-engine Latin America over the long haul was encouraging.
Valuentum’s Take
Competition continues to heat up, and Comcast’s (CMCSA) decision to merge with Time Warner Cable (TWC) creates a larger, formidable foe (see details here). However, it also increases the likelihood of a long-anticipated DirecTV-Dish Network (DISH) tie-up. Though we acknowledge the risks related to a fast-changing industry landscape, our primary thesis on DirecTV is valuation-based. At the time of this writing, we think shares are worth roughly $80 each, implying further upside. DirecTV continues to be a holding in the Best Ideas portfolio.