DirecTV (DTV) reported better-than-expected third-quarter results Tuesday. The firm’s quarterly revenue of $7.9 billion advanced more than 6% on a year-over-year basis, while third-quarter earnings per share exceeded forecasts by more than $0.27, coming in at $1.28, an impressive bottom-line showing. The firm repurchased $1.3 billion of stock in the third quarter, which led to the significant bottom-line beat. With every share of stock that DirecTV purchases, management is generating economic profit for shareholders (see here).
DirecTV US added 139,000 net new subscribers in the period as it achieved the lowest third-quarter churn rate in 6 years. DirecTV US ARPU (average revenue per user) growth was 6.2%, and DirecTV Latin American subscriber growth was strong over the last year’s quarterly mark. OPBDA (operating profit before depreciation and amortization) advanced 12% and 23% in DirecTV US and DirecTV Latin America, respectively. Consolidated OPBDA jumped 15%, showcasing the firm’s strong operating leverage (operating income advanced more than twice as fast as sales expansion), and free cash flow increased 17%, to $372 million (or 4.7% of sales).
Valuentum’s Take
DirecTV remains a holding in the portfolio of our Best Ideas Newsletter, and we didn’t see anything in its third-quarter results that would challenge our valuation thesis on the company. We’d like to continue to see the firm gobble up its undervalued stock in the periods ahead and expect valuation upside to $80 per share on the basis of our fair value estimate.