New Lease On Life For DirecTV

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Influential Merrill Lynch & Co. media analyst Jessica Reif Cohen maintained her “neutral” rating on DirecTV Group Inc., writing in a research report that third-quarter net new subscriber additions should stabilize as the direct broadcast satellite giant continues to reduce churn.

Reif Cohen estimated DirecTV will add about 164,000 new customers in the quarter — above the 125,000 added in the first quarter, but 38% below net adds during the same period last year. Churn for the period should come in at 1.75%, down from 1.89% in the previous year.

Reif Cohen added that DirecTV’s focus on higher-growth customers and its transformation to a lease model for subscriber equipment should translate into big gains in revenue and cash flow.

She estimated 12% revenue growth for the quarter and 149% cash flow growth (49% pre-lease benefit).

It has been speculated that DirecTV’s controlling shareholder News Corp. would swap its 38% interest in the DBS giant to Liberty Media Corp. for Liberty’s 19% voting stake in News Corp., a deal that Reif Cohen wrote could enable Liberty to significantly increase leverage and reduce DirecTV’s equity base.

Reif Cohen estimated that Liberty could boost gross leverage to three times cash flow — from its current level of about one times cash flow — creating an additional $6.6 billion in financial capacity.