DIRECTV(NASDAQ:DTV) is slated to release its fourth quarter 2011 results on Thursday, February 16 before the opening bell. The current Zacks Consensus Estimate for the fourth quarter is pegged at 91 cents, representing an annualized growth of 23.46%.

With respect to earnings surprise over the trailing four quarters, DTV has outperformed the Zacks Consensus Estimate in three of the last four quarters. The average earnings surprise was a positive 9.45%, implying that the company has outdone the Zacks Consensus Estimate by the same magnitude over the same period.

Third-Quarter Recap

On November 3, 2011, DTV reported its third quarter 2011 results. Quarterly GAAP net income was $521 million or 70 cents per share compared with $479 million or 55 cents per share in the year-ago quarter. Quarterly EPS of 70 cents was, however, below the Zacks Consensus Estimate of 73 cents.

Total revenue in the reported quarter came in at $6,844 million, up 13.6% year over year, and ahead of the Zacks Consensus Estimate of $6,737 million. This was primarily attributable to massive subscriber growth in the U.S. and Latin American regions, solid average monthly revenue per subscriber growth, and increasing contribution from the domestic market.

Agreement of Estimate Revisions

In the last 30 days, out of the 14 analysts covering the stock, three analysts increased the EPS estimates for the fourth quarter of 2011 but three decreased the same. Similarly, for the first quarter of fiscal 2012, out of the seven analysts covering the stock, one analyst raised the EPS estimate but two analysts slashed the estimate.

For fiscal 2011, in the last 30 days, out of the 17 analysts covering the stock, four analysts increased the EPS estimates while two analysts moved in the opposite direction. Similarly, for fiscal 2012, out of the 17 analysts covering the stock, four analysts increased the EPS estimates while five analysts moved downward.

In the last quarter, DIRECTV gained huge subscriber growth mainly driven by the NFL Sunday ticket promotion. So, we believe that with the end of NFL season, most analysts are apprehensive regarding the upside potential of the company for the ongoing quarter as well as for the upcoming quarters.

Magnitude of Estimate Revisions

During the last 30 days, the current Zacks Consensus Estimate was 3 cents above the previous estimate of 88 cents for the fourth quarter of 2011 while for the first quarter of 2012;the current Zacks Consensus Estimate was2 cents above the previous estimate of $1.05. However, for fiscal 2011, the current Zacks Consensus Estimate was a couple of cents above the previous estimate of $3.37. Likewise, for fiscal 2012, the current Zacks Consensus Estimate was just a penny above the previous estimate of $4.37.

Earning Surprises

The current Zacks Consensus Estimates for the ongoing quarter contains 4.40% upside potential while for the upcoming quarter, it is reflecting a 0.00% upside potential (essentially a proxy for future earning surprises). Similarly, for fiscal 2011 and 2012, the Zacks Consensus Estimates growth potential is 1.18% and 0.69%.

Our Recommendation

Strong fundamentals along with huge subscriber growth across all its segments make the company quite popular within the pay-TV industry.

However, within the satellite TV industry, DIRECTV is facing intense 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, Hulu, YouTube have become major threats to the overall pay-TV industry.

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

 
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