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JohnCLeven (29.89)

Holy buybacks Batman!!! - DIRECTV (DTV)



February 18, 2013 – Comments (20) | RELATED TICKERS: DTV.DL , BRK-B , BRK-A

DIRECTV (DTV) continues aggressive buybacks.

DTV announced a $4 Billion buyback today, which is about 13.5% of DTV’s market cap.

Since 2005, DTV has been buying back shares as aggressively as just about any company I’ve ever come across.

In 2006 they bought back 8.9% of shares outstanding

In 2007 they bought back 5.3%

In 2008 they bought back 7.3%

In 2009 they bought back 10.9%

In 2010 they bought back 11.7%

In 2011 they bought back 14.2%

In the trailing 12 months, they’ve bought back 11.1%

*all data from morningstar

This most recent 4B buy back is 13.5% of DTV’s market cap at current prices. That would lower the number of shares outstanding to just 578 million!

DTV has lowered the share count from 1.395 billion in 2005 to what will probably be about 578 million by the end of 2013. That’s an annualized rate of 10.4%! That’s insane!

Also, over the past 4 years DTV has generated between 2.0 and 2.8 billion in free cash flow. ($2.3 B in ‘09, $2.8B in ‘10, $2.0B in ’11, and $2.4B in TTM)

If we assume that DTV will generate between $2.0B and $2.8B of free cash flow again in 2013, that would be result in free cash flow per share between $3.46 and $4.84. That’s a 7%-10% free cash flow yield at today’s prices, and I think that’s very attractive for a company that makes up half of a duopoly (DISH being the other) Of course, if DTV actually grows going forward, which it should based on the previous 10 years of data, then that free cash flow yield would be even higher.

I think these buybacks are a big part of why Todd or Ted has been buying DTV shares for Berkshire Hathaway’s portfolio. I find DTV highly attractive at this time. I’ve up thumbed DTV in CAPs and am considering initiating a real life position.

What are your thoughts on DTV?

20 Comments – Post Your Own

#1) On February 18, 2013 at 3:14 PM, constructive (99.97) wrote:

I like DTV too, also considering starting a position.

Any idea what the bear case is?

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#2) On February 18, 2013 at 3:48 PM, JohnCLeven (29.89) wrote:

The bear case I hear the most about DTV is that AAPL is about to revolutionize TV and eat DTV's lunch. That's pure speculation, IMO. I'll dig a little deeper when I get home tonight.

Thanks for the link!

I notice Big Lots on that list. I've never checked them out before, but a quick peek shows a free cash flow yield of about 9%. Pretty solid 10 yr growth record too. Ironically, I park my car in a Big Lots parking lot every weekday bc I don't want to pay $30 per month to park at the train station itself. (Yea i'm that cheap) I'm gonna do some Phillip Fisher style scuttlebutt tonight, and actually venture inside that Big Lots when I get back.

So i'll comment tonight about DTV's bear case reserach and my Big Lots scuttlebutt mission. Thanks.

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#3) On February 18, 2013 at 5:58 PM, constructive (99.97) wrote:

I guess the primary issue is cost of content, coming from increased competition among Dish, cable, telecom and internet TV.

Increased competition has resulted in "cord-cutting" and churn at cable companies but not yet to DirecTV. Could be as result of their value proposition (especially in rural areas), long contracts, and good service.

At 10% their net profit margin is a bit higher than competitors, and is rising while competitors are declining.

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#4) On February 18, 2013 at 5:59 PM, constructive (99.97) wrote:

"Programming fees will rise approximately 8% going forward"


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#5) On February 18, 2013 at 6:06 PM, constructive (99.97) wrote:

FiOS and Uverse could take share away from them, given that a fairly high percent of DTV customers probably have DSL. But I think fiber rollout has slowed quite a bit.

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#6) On February 18, 2013 at 8:21 PM, JohnCLeven (29.89) wrote:

After spending another 45 minutes looking for negative comments about DTV, especially with regards to investing, the most consistent bear case being presented is competition from internet TV, Apple, Google, etc. Also the customer service is apparantly pretty bad too. So that's not really any new info, unfortunately.

When I look at DTV, I see a simple business, with 10 years of solidly growing revenues, earnings, and cash flow...and a rapidly declining share count. Latin American growth looks very encouraging as well. And the bear case dosent seem nearly as convincing as the positive data does, to me at least. I have a pretty hard time imagining DTV earning less $ in 5 years than they do today. Not only will DTV's pizza be bigger in  5 years, but they'll probably be cutting that pizza into significntly less slices as well, thanks to the buybacks. This means more pizza for us!

So, the new guys at Berkshire like them, you like them, valuemoney likes them, I like them, and Wall Street dosen't like what's not to like?

I visited Big Lots this evening as well. It seemed like a decent discount store, but not overly impressive. Foot traffic was decent for a weeknight, but nothing to write home about. Although the stock is cheap, and the buybacks are great, they really have no competitive advnatage,  as far as I can tell. Also, cash flow growth is pretty stagnant. I'll be checking in on BIG from time to time, but I don't think it's a company i'd buy in real life, even with epic buybacks.

Thanks for commenting, MegaShort!

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#7) On February 19, 2013 at 1:18 AM, valuemoneygreen (50.04) wrote:

Just some notes to add. Little over 6 billion added to debt to finance these buysbacks over the last few year. They got good terms. No major debt is due back until 2018. This might be the final major buyback. They still might continue depending on the price but when long term debt gets over 4x EBIT I get a little leary. That being said they can carry that much debt but buyback would be or should be cut by more than half. Couple other buyback plans you all could check out and the price shows the liking already is TUP which I don't know how my pick got ended. I did not mean to end it. None of my picks are suppose to be ended unless something major happens to change my mind.. any TUP has a buyback program now in place to purchase roughly HALF of the shares back..... stock price has been on a tare. And same goes for MPC wonder their stock price went from $33 to $ 82.50 in less than a year. JPM also has a pretty big buyback plan and their shares are still relatively cheap..... I think they have much of the $18 billion left on their buyback plan....Sorry if that number isn't correct I have to double check. I am hoping WFC. My top and only hold announces a major buyback plan in these next 3 months. If anyone else knows of any I am not stating that is worth while free free to share!!!! :) 

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#8) On February 19, 2013 at 1:23 AM, valuemoneygreen (50.04) wrote:

O one should check out retained earnings grow of JPM...pretty impressive....not quite as impressive as WFC's but good none the less. If I am not mistakin I think Warren Buffett holds it in his personal portfolio.... some please correct me if I am wrong.

O I am long WFC

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#9) On February 19, 2013 at 1:35 AM, valuemoneygreen (50.04) wrote:

And I did own DTV last year and the begining of this year bought in the 40's and sold in the 50's and if I only had more cash to invest I would be a buyer anywhere in the 40's. There might be a market pullback this week or next for a month or 2 so one might get a real attractive price. One could buy and hold even at these levels and still make out pretty well I would think. Ok I will quit rambling. And sorry about my spelling and grammar. I don't care to type or spell correctly......I just care about making money.

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#10) On February 19, 2013 at 8:46 AM, chk999 (99.96) wrote:

Berkshire does own a bunch of DTV, but it almost certainly isn't Warren that bought it, but one of his two investment officers, Todd and Ted. 

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#11) On February 19, 2013 at 10:34 AM, elcid24 (61.33) wrote:

Little over 6 billion added to debt to finance these buysbacks over the last few year. They got good terms. No major debt is due back until 2018. This might be the final major buyback.

Big Lots also issued a ton of debt to finance buybacks over the past year - not sure about the terms that they got.  But aren't most companies getting good terms right now?  Also, huge institutional buying last week.

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#12) On February 19, 2013 at 10:34 AM, constructive (99.97) wrote:

valuemoney, you're right, it's quite a lot of debt. I also wonder what the terrestrial and extra-terrestrial cap ex requirements look like over the next few years.

chk, valuemoney was saying that WEB bought JPM, not DTV. Ted Weschler is the DTV buyer, Todd Combs focuses pretty strictly on financial stocks.

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#13) On February 19, 2013 at 12:01 PM, elcid24 (61.33) wrote: 


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#14) On February 19, 2013 at 1:57 PM, elcid24 (61.33) wrote:


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#15) On February 19, 2013 at 2:30 PM, JohnCLeven (29.89) wrote:

You first link didn't work for me, but thanks for the second one!

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#16) On February 19, 2013 at 5:28 PM, constructive (99.97) wrote:

DirecTV has a variety of bonds outstanding, with an average interest rate on their debt around 5.1%.

The higher rate bonds are rolling off in 2013 and 2016. No wonder they have been leveraging up. If all goes well, the proportion of interest expense relative to cash flow will continue to fall reasonably quickly.

The credit rating appears stable at BBB (I sure wouldn't lend them money at these rates though.)

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#17) On February 19, 2013 at 7:19 PM, NovaTodd (31.21) wrote:

What initially drew my attention to DTV was the impressive growth in FCF/share: up from $0.79 in 2007 to almost $4 for the TTM. This company has been an excellent compounder of owner's earnings. 

I do think they are in an industry that could see radical changes over the next decade. As Tim Cook has noted:

"When I go into my living room and turn on the TV, I feel like I have gone backwards in time by 20 to 30 years." 

I do feel a bit hedged against this sort of technological disruption, as I hold positions in both AAPL and INTC. I'm also comforted by DTV's impressive Latin American growth, where major shifts in content consumption aren't nearly as imminent (to the extent that they are imminent here - which is still largely speculation at this point). 

As impressive as Latin American growth has been, it still only represents about 25% of the company's revenue. This is mainly due to the intense focus on pursuing growth in Latin America, even at the expense of ARPU (average revenue per user). You can see that this figure has declined in Latin America by almost 10% YoY, while it has been steadily rising in the U.S. I think this a very wise approach by management. Eventually, as growth in Latin America begins to stabilize, I suspect this number will begin a steady trend upward. 

 Thanks for raising an interesting topic!


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#18) On February 20, 2013 at 11:59 AM, constructive (99.97) wrote:

As a reminder, our results exclude those of SKY Mexico, which we do not consolidate.

In PanAmericana, gross additions grew 48% compared to last year, with sales of our prepaid product in Argentina, Colombia and Venezuela driving much of the growth.

Cash flow before interest and taxes in the quarter of $82 million declined from $101 million a year ago as higher OPBDA and high dividends were more than offset by higher nonsubscriber-related CapEx and higher satellite payments and unfavorable working capital movements.

That said, we're expecting programming costs per subscriber growth for the full year to be similar to the rate we saw in 2012 of about 8%.

As such, we are targeting subscriber services, broadcast operations and G&A expenses to be relatively flat and, in some cases, down in each of the next 3 years as a percentage of revenues. [This seems good.]

In addition, as Mike mentioned at an investor conference last month, we expect 2013 to be a peak year in capital spending at DIRECTV U.S. at approximately $2 billion.

So I think for both the U.S. and Latin America, the CapEx on satellite's in kind of the $150 million range for both.

Interesting call.

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#19) On February 20, 2013 at 12:39 PM, chk999 (99.96) wrote:

chk, valuemoney was saying that WEB bought JPM, not DTV. Ted Weschler is the DTV buyer, Todd Combs focuses pretty strictly on financial stocks.

Ah, you are correct, I misread the comment. 

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#20) On February 20, 2013 at 1:43 PM, constructive (99.97) wrote:

Sky Mexico is 59% owned by Grupo Televisa, 41% owned by DirecTV. By my quick guess DTV's stake might be worth $1.7B to $2B.

The overall guidance for the next 2-3 years seems quite good to me. Margins are expected to creep up a little bit, high single digit revenue growth and continued buybacks = ~20% earnings growth.

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