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I am an author of books related to the decision framing and optimizing processes of Buffett and Munger. These books are available at www.frips.com and: http://www.amazon.com/Bud-Labitan/e/B002D1ERT4 With integrity and patience, we can also earn superior profits by carefully evaluating facts and... More
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  • A Value Guy looks at DIRECTV., DTV 1 comment
    May 10, 2010 7:24 PM | about stocks: DTV

    DIRECTV
    5/10/2010 
     
    DIRECTV, incorporated in 2009, is a provider of digital television entertainment in the United States and Latin America. The Company operates two direct-to-home (DTH) operating segments: DIRECTV U.S. and DIRECTV Latin America. DIRECTV Holdings LLC and its subsidiaries (DIRECTV U.S.) is the provider of DTH digital television services and the second largest provider in the multi-channel video programming distribution (MVPD). DIRECTV Latin America (DTVLA) is a provider of DTH digital television services throughout Latin America. DTVLA is comprised of: PanAmericana, which provides services in Venezuela, Argentina, Chile, Colombia, Puerto Rico and certain other countries in the region through the wholly owned subsidiary, DIRECTV Latin America, LLC (DLA LLC); the 74% owned subsidiary, Sky Brasil Servicos Ltda. (Sky Brazil); and the 41% equity method investment in Innova, S. de R.L. de C.V., (Sky Mexico).
     
    fyi Last Price 37.45
    52 Week High 37.64
    52 Week Low 29.83

    Does DTV make for an intelligent investment or intelligent speculation today?

    Starting with a base estimate of annual Free Cash Flow at a value of approximately $2,360,000,000 and the number of shares outstanding at 933,000,000 shares; we used an assumed FCF annual growth of 8 percent for the first 10 years and assume zero growth from years 11 to 15.  Review the Free Cash Flow record here:

    http://quicktake.morningstar.com/stocknet/CashFlowRatios10.aspx?Country=USA&Symbol=DTV

    The resulting estimated intrinsic value per share (discounted back to the present) is approximately $42.23.

      Market Price = $37.45
      Intrinsic Value = $42.23  (estimated)
      Debt/Equity ratio = 3.
      Price To Value (P/V) ratio = .89  and the estimated bargain = 11. percent.

    Before we make a purchase, we must decide ( filter #1 ) if DTV is a high quality business with good economics. Does DTV have ( filter #2 ) enduring competitive advantages, and does DTV have ( filter #3 ) honest and able management.

    The current price/earnings ratio = 26.8
    It 's current return on capital = 10.34
    Using a debt to equity ratio of 3., DTV shows a 5-year average return on equity = 18.3

    Some industries have higher ROE because they require no assets, such as consulting firms. Other industries require large infrastructure builds before they generate a penny of profit, such as oil refiners. Generally, capital-intensive businesses have higher barriers to entry, which limit competition. But, high-ROE firms with small asset bases have lower barriers to entry. Thus, such firms face more business risk because competitors can replicate their success without having to obtain much outside funding.

    Growth benefits investors only when the business in point can invest at incremental returns that are enticing; only when each dollar used to finance the growth creates over a dollar of long-term market value. In the case of a low-return business requiring incremental funds, growth hurts the investor. The wonderful companies sustain a competitive advantage, produce free cash flow, and use debt wisely.

    Does DTV make for an intelligent investment or speculation today? Time is said to be the friend of the wonderful company and the enemy of the mediocre one. Before making an investment decision, seek understanding about the company, its products, and its sustainable competitive advantages over competitors. Next, look for able and trustworthy managers who are focused more on value than just growth. Finally ask: Is there a bargain relative to its intrinsic value per share today?

    Great investment opportunities come around when excellent companies are surrounded by unusual circumstances that cause the stock to be misapraised. In terms of Opportunity Cost, is DTV the best place to invest our money today?

    TIME FORWARD PROJECTION:

    How will DTV compete going forward? Keep in mind that a financial report like this is a reflection of the past and present. It may be used to project a future, but it may not account for factors yet unseen. Therefore, pay attention to competitive and market factors that may affect changes in profitability.

    In summary, using a debt to equity ratio of 3., DTV shows a 5-year average return on equity = 18.3 . Based on a holding and compounding period of 10 years, and a purchase price bargain of 11. percent, and a relative FCF growth of 8 percent, then the estimated effective annual yield on this investment may be greater than 9.2 %.

    Going forward, are there any tranformational catalysts or condition indicators imaginable on the horizon?

    As always, I appreciate hearing your views,

    Bud Labitan
    Author of the new book 'Price To Value'
    http://www.amazon.com/Price-Value-Bud-Labitan/dp/0557317185

    Author of 'The Four Filters Invention of Warren Buffett and Charlie Munger'
    http://www.amazon.com/dp/0615241298

    Labitan Partners
    budlabitan@ aol.com
    www.frips.com

     



    Disclosure: no positions
    Themes: valuation Stocks: DTV
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  • Author’s reply » Let us do a rough estimated intrinsic value estimation on DIRECTV, a provider of digital television entertainment.

     

    The Company operates two direct-to-home (DTH), operating segments: DIRECTV U.S. and DIRECTV Latin America (DTVLA), which are engaged in acquiring, promoting, selling and/or distributing digital entertainment programming primarily via satellite to residential and commercial subscribers.

     

    It also operates three regional sports networks (RSNs) and owns a 65% interest in Game Show Network, LLC (GSN), a television network for game-related programming and Internet interactive game playing. DIRECTV Holdings LLC and its subsidiaries (referred to as DIRECTV U.S.) is a provider of DTH digital television services.

     

    DTVLA is a provider of DTH digital television services throughout Latin America. DIRECTV Sports Networks LLC and its subsidiaries (DSN) consist of three RSNs based in Seattle, Washington, Denver, Colorado and Pittsburgh, Pennsylvania, FSN Northwest, FSN Rocky Mountain and FSN Pittsburgh.

     

    STOCK ACTIVITY
    Last Price 44.66

     

    Does DTV make for an intelligent investment or intelligent speculation today?
    Starting with a base estimate of annual Free Cash Flow at a value of approximately $2,500,000,000 and the number of shares outstanding at 705,600,000 shares; we used an assumed FCF annual growth of 9 percent for the first 10 years and assume zero growth from years 11 to 15. Review the Free Cash Flow record here:

     

    http://bit.ly/Avwc8E

     

    The resulting estimated intrinsic value per share (discounted back to the present) is approximately $60.03.

     

    Market Price = $44.66
    Intrinsic Value = $60.03 (estimated)
    Debt/Equity ratio = 0
    Price To Value (P/V) ratio = .74 and the estimated bargain = 26. percent.

     

    Before we make a purchase, we must decide ( filter #1 ) if DTV is a high quality business with good economics. Does DTV have ( filter #2 ) enduring competitive advantages, and does DTV have ( filter #3 ) honest and able management.

     

    The current price/earnings ratio = 14.5 and It 's current return on capital = 12.
    Using a debt to equity ratio of 0, DTV shows a 5-year average return on equity = 30.8
    17 Feb 2012, 12:17 PM Reply Like
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