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DIRECTV (NASDAQ:DTV) is slated to release its fourth quarter 2010 results on February 23 before the opening bell. The current Zacks Consensus Estimate for the fourth quarter is pegged at 63 cents, representing an annualized growth of 31.04%.

With respect to earnings surprises, over the trailing four quarters, DTV has outperformed the Zacks Consensus Estimate for all the three quarters except the last quarter, where the Zacks Consensus Estimate was in line with the actual earnings.

The average earnings surprise was a positive 16.62%, implying that the company has outdone the Zacks Consensus Estimate by the same magnitude over the last four quarters.

Third-Quarter Performance

On November 4, 2010, DTV reported its third quarter fiscal 2010 results. Quarterly GAAP net income was $479 million or 55 cents per share compared with a net income of $66 million or 37 cents per share in the year-ago quarter. Third quarter 2010 earnings per share (NYSEARCA:EPS) of 55 cents was in line with the Zacks Consensus Estimate.

Third quarter 2010 total revenue was $6,025 million, up 10% year over year and was well above the Zacks Consensus Estimate of $5,952 million. This was primarily due to massive subscriber growth in both the U.S. and Latin America.

Agreement of Estimate Revisions

In the last 30 days, out of the 20 analysts covering the stock, 3 analysts decreased their EPS estimates for the fourth quarter 2010 while none increased it upward. Similarly, for first quarter of fiscal 2011, out of the 10 analysts covering the stock, 1 analyst decreased its EPS estimate and none increased the same.

For fiscal 2010, in the last 30 days, out of the 18 analysts covering the stock, 1 analyst increased its EPS estimates and 1 lowered it. Similarly, for fiscal 2011, out of the 20 analysts covering the stock, 2 analysts increased their EPS estimates while 3 reduced their EPS estimates.

Magnitude of Estimate Revisions

Relating to these downward revisions of estimates, the Zacks Consensus Estimate inched down 1 cent from 64 cents to 63 cents, during the last 30 days, for the fourth quarter 2010. Similarly for the first quarter 2011, the Zacks Consensus Estimate was down 1 cent from 70 cents to 69 cents.

For fiscal 2010, there was no change in estimates in the last 30 days and the Zacks Consensus Estimate was in line at $2.36. While for fiscal 2012, the Zacks Consensus Estimate dipped 3 cents, from $3.07 to $3.04.

Earning Surprises

DIRECTV did not produce any earnings surprise in the previous quarter and was in line with the Zacks Consensus Estimate of 55 cents. The current Zacks Consensus Estimates for the ongoing quarter contains a 3.18% upside potential while the upcoming quarter reflects a 5.8% downside potential (essentially a proxy for future earning surprises). Similarly for fiscal 2011, the Zacks Consensus Estimate's upside potential is 0.42% and for fiscal 2012, the downside potential is 0.33%.

Our Recommendation

DIRECTV remains one of the few pay-TV service providers that are still generating commendable video subscriber growth. DIRECTV is reaping the benefit of quality subscribers who are willing to pay for the company’s costly premium services and programs with low churn rate. The attractive new partnership with Centurylink in Latin America is expected to enhance DIRECTV’s sales in the long run .

However, within the satellite TV industry, DIRECTV is facing increasing competition from its nearest rival DISH Network (NASDAQ:DISH). Furthermore, U.S. telecom giants, AT&T (NYSE:T) and Verizon Wireless (NYSE:VZ) are increasingly rolling out their fiber-based network in order to provide video services.

Additionally, the newly developed Internet video streaming companies like Netflix (NASDAQ:NFLX), Hulu, YouTube have become major threats to the overall pay-TV industry.

We, thus, maintain our long-term Neutral recommendation for DIRECTV. Currently, it has a Zacks #3 Rank, implying a short-term HOLD rating on the stock.

Source: DirecTV: Earnings Preview