Can DirecTV Stock Benefit From This Acquisition?

With shares of DirecTV (NASDAQ:DTV) trading around $63, is DTV an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

DirecTV provides digital television entertainment in the United States and Latin America. The company engages in acquiring, promoting, selling, and distributing digital entertainment programming primarily through satellite to residential and commercial subscribers. A rising number of consumers are opting for satellite services due to the reduced costs and increased coverage offered. DirecTV is poised to capitalize on the increased entertainment demand from consumers in the United States and Latin America.

DirecTV along with Guggenheim Digital Media and KKR (NYSE:KKR) have reportedly made a joint bid for online TV streaming service Hulu. This news comes after AT&T (NYSE:T) and Chernin Group made their own bid for the company yesterday. Time Warner Cable (NYSE:TWC) has also expressed interest in buying stake in the company. This potential acquisition may be key for DirecTV as it looks to expand its offerings and its user base.

T = Technicals on the Stock Chart are Strong

DirecTV stock has witnessed an explosive move higher over the last several years. The stock is now trading near all-time high prices so it may need a little time before its next move. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, DirecTV is trading above its rising key averages which signal neutral to bullish price action in the near-term.

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of DirecTV options may help determine if investors are bullish, neutral, or bearish.

	Implied Volatility (IV)	30-Day IV Percentile	90-Day IV Percentile
DirecTV Options	31.29%	96%	94%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

	Put IV Skew	Call IV Skew
July Options	Flat	Average
August Options	Flat	Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on DirecTV’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for DirecTV look like and more importantly, how did the markets like these numbers?

	2013 Q1	2012 Q4	2012 Q3	2012 Q2
Earnings Growth (Y-O-Y)	12.15%	50.50%	28.57%	19.788%
Revenue Growth (Y-O-Y)	7.58%	7.92%	8.36%	9.45%
Earnings Reaction	6.88%	-2.82%	-0.29%	-2.59%

DirecTV has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have been excited about DirecTV’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has DirecTV stock done relative to its peers, Dish Network (NASDAQ:DISH), Comcast (NASDAQ:CMCSA), Time Warner Cable (NYSE:TWC), and sector?

	DirecTV	Dish Network	Comcast	Time Warner Cable	Sector
Year-to-Date Return	26.32%	17.03%	14.86%	17.74%	16.55%

DirecTV has been a relative performance leader, year-to-date.

Conclusion

DirecTV is a digital television entertainment company that offers satellite services to consumers and companies across the nation. The company is attempting to jointly acquire Hulu in order to expand its offerings and user base. The stock has been trending higher for the last several years and is now trading near all-time high prices. Over the last four quarters, investors in the company have been excited as earnings and revenue figures have been steadily rising. Relative to its peers and sector, DirecTV is a year-to-date performance leader. Look for DirecTV to continue to OUTPERFORM.