Satellite Wars: Investors Should Dump DISH and Go DIRECTV
Everything is right in DIRECTV's (DTV) world now after this weekend's kickoff of the new pro football season. The standoff between players and owners got a bit tense earlier this summer, but was there ever any doubt that the NFL season -- and with that DIRECTV's NFL Sunday Ticket -- would go on as planned?
Subscribers to DIRECTV know that there are cheaper satellite, cable, and cord-cutting alternatives out there. That's not going to sway the couch potatoes, all 30 million of them. The country's largest entertainment subscription service is the only place where football fans can watch every game of the new NFL season.
Don't be fooled by the RedZone network, the highlights-fueled channel that rival services offer their gridiron fans because only DIRECTV has the exclusive NFL rights locked up for the next few years . DIRECTV is the class act when it comes to programming content, and subscribers willingly accept the premium they have to pay.
Debunking the Cord-Cutting Myth
Several cable operators and even DIRECTV rival DISH Network (DISH) suffered net defections during the economic lull. The popular excuse is that the cord-cutting revolution is taking place, as thrifty homes replace costly cable and satellite television bills with streaming solutions.
That just isn't the case anymore, and now some believe that the net decline in pay television last summer -- the first time that we have seen that happen in the history of pay television, according to media market research specialist SNL Kagan -- was caused by general economic malaise. The housing crisis, with so many foreclosed homes sitting vacant, also likely played a factor. We're spending more time in our homes, and premium television is a major component of entertainment for homebodies.
DIRECTV didn't stumble the way smaller providers did, though. DIRECTV has come through with 60 consecutive quarters of net subscriber gains. In other words, the pay television blip wasn't just about saving money.
Dishing It Out
DISH is a bit of a troublemaker in its industry. It defiantly feasted on TiVo's (TIVO) DVR patents until coming up short in what will be a nine-figure settlement. It also made a risky wager by snatching up Blockbuster in bankruptcy court earlier this year. To DISH's credit, it did snag the video rentals pioneer at an attractive price, but does that even matter as long as Blockbuster continues to lose money, shutter stores, and shed customers?
The Price Is Right
Both DIRECTV and DISH trade at reasonable prices, with DIRECTV fetching 12 times this year's projected profitability and DISH trading at a mere seven times that multiple. Unfortunately only one of the two companies is expected to continue to grow its earnings next year, and it's not DISH.
Looking ahead to 2012, the P/E disparity narrows. DISH's multiple bumps up to eight, while DIRECTV is going for less than 10 times next year's bottom-line target.
Neither company currently pays out a regular dividend, so why take a chance on a laggard going the wrong way when the market leader is available at a compelling price?
I'll stick with DIRECTV.
Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article.
