NEW YORK (TheStreet) -- Several major news outlets are reporting that acquisition talks between AT&T (T) and DirecTV (DTV) are heating up as DirecTV is talking with multiple advisers, including Goldman Sachs (GS), about AT&T's possible bid for the company.
A potential merger would create a digital television company that would service 25 million subscribers and act as a potential rival to a Comcast (CMCSA), Time Warner Cable (TWC) proposed merger.
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TheStreet Ratings team rates DIRECTV as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:
"We rate DIRECTV (DTV) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance, good cash flow from operations and expanding profit margins. We feel these strengths outweigh the fact that the company has had sub par growth in net income."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- DTV's revenue growth has slightly outpaced the industry average of 5.1%. Since the same quarter one year prior, revenues slightly increased by 6.7%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- Compared to its closing price of one year ago, DTV's share price has jumped by 42.55%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, although almost any stock can fall in a broad market decline, DTV should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
- Net operating cash flow has increased to $2,039.00 million or 35.84% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 3.44%.
- DIRECTV' earnings per share from the most recent quarter came in slightly below the year earlier quarter. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, DIRECTV increased its bottom line by earning $5.19 versus $4.61 in the prior year. This year, the market expects an improvement in earnings ($5.98 versus $5.19).
- 44.72% is the gross profit margin for DIRECTV which we consider to be strong. Regardless of DTV's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 9.42% trails the industry average.
- You can view the full analysis from the report here: DTV Ratings Report