On July 31, DirecTV (DTV) delivered another set of positive results: ARPU was up 4.6% in the US, while subscribers continued to grow in all its markets and free cash flow was up 24% YoY, reflecting the already anticipated lower capital expenditures in 2014.
In my article dated February 20, I had estimated Owner Earnings per share to reach at least $6.50 in 2014. I had also forecasted FCF growth of at least 9%. (According to the Q2 earnings call, DirecTV now guides for 10% FCF growth in 2014.) Hence, even without further share repurchases - which have been halted due to the merger with AT&T (NYSE:T) - I am very confident that the company will reach my target, as even the totally unadjusted GAAP-EPS in the quarter of $1.59 would almost be sufficient if multiplied by 4.
Investors are either believing that the AT&T merger will be approved and expect to receive the agreed premium and nothing more, or they are frightened that the merger might go bust after a potential exclusivity loss for the NFL Sunday Ticket or because of regulatory concerns. The current market price still reflects these three possibilities. Of course it stays below the agreed takeover price, but stays much lower because it might not get completed. Personally I am still holding my DTV shares, believing that either outcome would be great.
The company is superbly managed and will continue to do fine for the foreseeable future even without merging with AT&T or without the NFL Sunday Ticket. And if the two companies merge, I will receive $95 for my shares, which represents a generous 10% return on the current share price in probably less than one year, maybe already in autumn, when the NFL question will be off the table.
Disclosure: The author is long DTV. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.