DirecTV Tunes into Buybacks

02/17/2014 7:00 am EST

Focus: STOCKS

Richard Moroney

Editor, Dow Theory Forecasts

We're recommending a media-related company that is rewarding investors with a disciplined buyback strategy, explains Richard Moroney, editor of Dow Theory Forecasts.

Since launching its share-repurchase program in 2006, DirecTV (DTV) has spent nearly $29 billion to shrink its share count by 61%. For the 31 quarters ended September, the company paid an average price of $32 per share.

In the first nine months of 2013, DirecTV spent $3.28 billion to repurchase enough shares to reduce the count by 10%, paying an average price of $57 per share.

Management has targeted $4 billion in stock buybacks in 2013, entering the December quarter with $1.6 billion remaining under its current repurchase plan.

In coming years, DirecTV expects capital spending to taper from 2013 levels, potentially freeing up more cash to be returned to investors.

For now, DirecTV seems content to maintain its buyback strategy and eschew a dividend.

Management has frequently cited the tax advantages of repurchasing stock over paying a dividend, which exposes earnings to taxation at both the corporate and shareholder levels.

Moreover, DirecTV does not appear to be overpaying for its own shares. The stock trades at just 12 times projected 2014 earnings.

The company will disclose more details on repurchases February 20, when it posts December-quarter results.

Analysts expect DirecTV to earn $1.28 per share, down 9%, on 5% revenue growth. For 2014, the consensus projects 17% growth in per-share profits on 5% higher sales. We rate the stock a long-term buy.

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