Should You Consider DirecTV?

With shares of DirecTV (NASDAQ:DTV) trading around $85, is DTV an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

DirecTV provides digital television entertainment in the United States and Latin America. The company engages in acquiring, promoting, selling, and distributing digital entertainment programming primarily through satellite to residential and commercial subscribers. A rising number of consumers are opting for satellite services due to the reduced costs and increased coverage offered. DirecTV is poised to capitalize on the increased entertainment demand from consumers in the United States and Latin America.

DirecTV disclosed today that it had been in merger discussions with a competitor up until six days before agreeing to be bought by AT&T (NYSE:T). DirecTV had been in talks to merge with an unnamed Company A at the same time the company was discussing a transaction with AT&T, according to detailed merger documents that AT&T filed with the U.S. Securities and Exchange Commission today. After Company A ended the talks on May 12 because the relative prices of the companies was a “nonstarter,” DirecTV agreed to sell to AT&T for $48.5 billion on May 18. While the filing didn’t disclose the name of Company A, Bloomberg News reported in March that Dish Network (NASDAQ:DISH) Chair Charlie Ergen had contacted DirecTV Chief Executive Officer Mike White to discuss a merger of the two satellite companies, citing people with knowledge of the matter. Dish and DirecTV had tried to merge in 2002 and were blocked by regulators. Talks with Company A had also taken place in 2011 before reemerging in December 2013, the filing shows.

T = Technicals on the Stock Chart Are Strong

DirecTV stock has been trending higher in recent years. The stock is currently moving higher and looks set to continue. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, DirecTV is trading above its rising key averages which signal neutral to bullish price action in the near-term.

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of DirecTV options may help determine if investors are bullish, neutral, or bearish.

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Mixed Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on DirecTV’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for DirecTV look like and more importantly, how did the markets like these numbers?

DirecTV has seen mixed earnings and increasing revenue figures over the last four quarters. From these numbers, the markets have been pleased with DirecTV’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has DirecTV stock done relative to its peers, Dish Network (NASDAQ:DISH), Comcast (NASDAQ:CMCSA), Time Warner Cable (NASDAQ:TWC), and sector?

DirecTV has been a relative performance leader, year-to-date.

Conclusion

DirecTV is a digital television entertainment company that offers satellite services to consumers and companies across the nation. The company disclosed today that it had been in merger discussions with a competitor up until six days before agreeing to be bought by AT&T. The stock has been trending higher in recent years and looks poised to continue. Over the last four quarters, earnings have been mixed while revenues have been rising, leaving investors pleased about recent earnings announcements. Relative to its peers and sector, DirecTV has been a relative performance leader in the year to date. Look for DirecTV to continue to OUTPERFORM.

Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

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More From Wall St. Cheat Sheet:

• DIRECTV Responds to DISH, AT&T With Wireless Genie Mini
• DirecTV Says Comcast Merger Must Be ‘Appropriately Scrutinized’
• DirecTV Beats Earnings Expectations and Shares the Love With Investors

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