AT&T And DirecTV Merger Rumor: What The Top Sell-Side Analysts Are Saying

AT&T And DirecTV Merger Rumor: What The Top Sell-Side Analysts Are Saying

DIRECTV (NASDAQ:DTV), a leading provider of broadcast television, is looking more and more appealing to companies, including AT&T Inc. (NYSE:T).

DirecTV in the News

DIRECTV (NASDAQ:DTV) is poised to post first-quarter results tomorrow, but the real buzz is about AT&T Inc. (NYSE:T)’s bid to purchase the company. DirecTV has about 20 million subscribers and AT&T only has around 5.7 million customers, but if they were to combine, they would become one of the largest pay-TV companies and will be in direct competition with Comcast Corporation (NASDAQ:CMCSA)-Time Warner Cable Inc (NYSE:TWC). While AT&T Inc. (NYSE:T) has only recently reached out to DirecTV to discuss the possibility of an acquisition, this gesture alone could start to shake-up the television industry.

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What Does This Mean For DirecTV Stock?

Citi Research analyst Jason Bazinet recently downgraded DIRECTV (NASDAQ:DTV) from BUY to HOLD, but raised his price target from $79.00 to $82.00. Right now, Jason sees, “little upside on current equity values.” He argued, “Even if DirecTV achieves (nearly) $8 in (non-Venezuela) FCF and EPS in 2016 we see the stock gliding to $82 (12.9x FCF) by year-end ’14 and $95 (12.3x FCF) by year-end 2015.” However, Jason also noted “the equity value could spout higher following a possible merger announcement of the two DBS firms. If the firms merge, a $15.00 or 18 percent upside is likely.” Jason is ranked 143 out of 3052 analysts, with a +3.4% average return over S&P-500 and a 64% success rate of recommended stocks.

Jason’s Past Recommendations

Jason has earned his impressive statistics recommending similar entertainment companies including, Meredith Corporation (NYSE:MDP) and Scripps Networks Interactive, Inc. (NYSE:SNI).

In February, Jason recommended BUY Meredith Corporation (NYSE:MDP) based on the rationale that the company would buy Time Inc. once it spins off from Time Warner later this year. Jason argued, “A year ago, press reports (WSJ, New York Times) suggested Meredith was interested in acquiring Time. While the two parties did not reach an agreement, we believe the deal makes strategic and financial sense. And when Time spins out of Time Warner Inc (NYSE:TWX) in 2Q14, we expect Meredith will again look to acquire the firm.” Jason added, “given strong potential upside from a Time Inc deal, we believe Meredith’s equity is compelling at current levels.” While his reasoning might have been out of the box, this recommendation earned Jason +1.4% over S&P 500 (INDEXSP:.INX).

Jason also saw success, recommending SELL Scripps Networks Interactive (SNI) before giving into rumors. Shares jumped after speculation that Discovery Communications (DISCA) might be interested in bidding for Scripps however, Jason warned that investors should not believe the news. Jason noted, “Given  Discovery’s singular focus on international markets and Scripps’ focus on US  markets, the only way the transaction makes strategic sense is if Discovery believed it could expand Scripps into International markets more aggressively. We do not believe this is the case. As such, we think it’s unlikely that the press reports are true.” While he was proving his point, his SELL recommendation earned him +10.1% over S&P 500 (INDEXSP:.INX).

While Jason has earned many positive returns in the past, he has also experienced a few losses, including his BUY Viacom, Inc. (NASDAQ:VIAB) recommendation from November 2013. Jason reiterated his BUY rating and raised his price target from $84.00 to $102.00, expecting “revenue to grow 7% to $3.61 billion, in-line with consensus.” Jason also expected, “domestic advertising revenue to accelerate sequentially to 7% and affiliate fees to grow 7%.” However, his high hopes did not materialize during the time of the recommendation, leaving Jason with -0.9% over S&P 500 (INDEXSP:.INX).

But Jason rebounded with positive returns from his BUY DISH Network Corp (NASDAQ:DISH) recommendation from the end of last year. In November, Jason maintained his BUY rating and $61 price target after Dish Network released better-than-expected third-quarter earnings. Jason noted, “Subscriber metrics beat our estimates across the board, which resulted in Dish reporting positive net adds versus our estimate for net losses in the quarter. We are particularly encouraged by gross adds of 734k which beat our 680k estimate by 7.9%. Expect stock to trade higher.” Jason earned +10.8% over S&P-500.

The possible merger between DIRECTV (NASDAQ:DTV) and AT&T Inc. (NYSE:T) might just be rumors…for now, but it might very well be the truth in the near future. Until the headlines have proof, what will you do with your DirecTV stock?

Jordan Faigen covers financial markets and the latest stock market news. She can be reached at [email protected]

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