[Satellite TODAY Insider 03-29-12] Financial firm Citigroup raised its rating on DirecTV based on the satellite pay-TV company’s rapidly growing Latin American business, which it believes is being undervalued by the market, Citigroup analysts said in a March 28 research note.
DirecTV added fewer U.S. subscribers than anticipated in its 2011 fourth quarter, but added much more customers than expected in Latin America, especially in its most active growth markets in Brazil, Argentina, Venezuela and Mexico. DirecTV Latin America added a net 590,000 subscribers in the fourth quarter — up from 378,000 subscribers tacked on a year earlier, which drove its total subscriber base in the region to 7.87 million by the end of last year. That figure includes subscribers of Sky Mexico, which closed the year with 4.01 million clients.
Citigroup Analyst Jason Bazinet said DirecTV’s Latin American business is being undervalued by about $13 a share. “The tepid free cash flow at its Latin American operations has raised caution among investors, leading them to undervalue the business,” said Bazinet. “Though the ascribed value of the company’s domestic [U.S.-based] operations is $47 per share, we are raising our price target on the stock to $59 due to the strength of DirecTV Latin America. We expect the company will take advantage of the undervaluation through share buybacks.”
With the 16 percent jump in DirecTV’s fourth-quarter profits primarily driven by the growing scale of DirecTV Latin America, Bernstein Research Analyst Craig Moffett believes the company should find its proper focus to offset the slowing U.S. market.
“Latin America is now the core business,” Moffett wrote in a report issued with DirecTV’s fourth quarter results. “We expect DirecTV Latin American operations to account for around 40 percent of the group’s revenue by the end of 2015, from around 18.5 percent at the end of the 2011 fourth quarter.”
DirecTV also recently announced that its satellite TV provider subsidiary Sky Brazil is set to launch an over-the-top (OTT) Internet TV service called Sky Online — a new venture representing the first Internet video streaming service launched by DirecTV in Latin America. The firm, which provides satellite TV services through its Pan-American subsidiary in Venezuela, Argentina, Chile and Colombia, holds a 93 percent stake in Sky Brazil, along with a 41 percent share of Sky Mexico.
DirecTV has been looking to compete with video-on-demand competitor Netflix, which began rolling out service to 43 countries across Latin America and the Caribbean in September. Web-based service NetMovies also provides streaming Internet video in Brazil.