Wachovia Capital Markets broadcasting analyst Marci Ryvicker is now also the firm’s analyst for cable television MSOs and satellite television companies. Thus far, she’s published opinions on four, giving a thumbs-up to only one.
On the satellite side, Ryvicker likes that both DirecTV (DTV) and Dish Network (DISH) are under-leveraged, at 1.2 times and 1.6 times respectively. She also notes that satellite TV is less capital intensive and more efficient than the earth-bound competitors. On the other hand, satellite is limited by its lack of a high-speed broadband component and it is loosing its HD advantage over cable as the latter systems upgrade and reclaim spectrum by going all-digital. So, her overall view of the two-stock satellite TV sector is to give it a “market weight” ranking.
But, when she looks at the two companies, her views could not be more different.
“We believe DTV will continue to report industry-leading average revenue per unit (ARPU), churn, sub gains, revenue and operating profit before depreciation and amortization (OPBDA) growth throughout ’09 and ’10, due to a loyal customer base, which over-indexes in income, education, and home ownership, and due to an exclusive distribution agreement with AT&T. DTV is an outperformer with an inexpensive valuation (4.4x’09E OPBDA vs. the cable average of 5.0x) and we see a likely merger with Liberty Entertainment, as widely speculated in the media, as a potential catalyst,” Ryvicker wrote, giving the stock an outperform rating.
“DISH is a tough call. On the one hand, it is relatively inexpensive, has an excellent balance sheet, generates significant free cash flow and is run by a well-respected, hard-working management team, in our view. On the other hand, DISH has surprised the Street with its subscriber (sub) losses (102,000 in 2008) and high churn (1.86% in 2008 versus historical levels of 1.60%). We attribute this underperformance to intense competition, a difficult economy, and operational deficiencies. Management is aware of these issues and is responsive, but we feel a turnaround will be lengthy. Street expectations appear low, but we just can’t get excited over an inexpensive valuation. We have resumed coverage of DISH with a Market Perform rating and an $11.00-13.00 valuation range,” she wrote.
Ryvicker also issued her first research reports on Comcast – “Not enough to get us excited yet.” – and Cablevision – “More pain before gain.” Both are rated market perform.