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DIRECTV GROUP's (DTV) outlook for Latin America and its stock buyback plan will draw investor cheers or jeers. The satellite TV broadcaster is slated to hold its investor day event in
New York on Thursday. "Latin America is going to be on people's minds," David Heger, an analyst with Edward Jones, told IBD. "It's still a potential growth driver
because its pay-TV market is much less penetrated than the U.S." Heger says that even with slower growth, the U.S. business still generates a lot of free cash flow for DirecTV. "In
Latin America, the key is not seeing more margin pressure, which may impact what free cash flow is available to buy back shares," he said. DirecTV stock repurchases "may slow a
bit," Heger said, noting DirecTV says it won't add debt to fund buybacks. DirecTV, though, has been on a fast pace for a while. Its shares outstanding are down 57% since Q4 2006,
says Standard & Poor's analyst Howard Silverblatt. Fewer shares boost DirecTV's per-share profit and give it stock it can reissue for use in acquisitions. STOCK UP IN 2013,
MOSTLY EARLY The company's stock is up 35% in 2013. But the stock had been up and down the past six months as bears focus on slowing subscriber growth in Latin America and bulls eye
speculation of a merger with rival DISH NETWORK (DISH). Latin America, especially Brazil, has been an issue. El Segundo, Calif.-based DirecTV's stock rose in March after investor
worries that it would buy Brazilian telecom firm GVT, owned by France's Vivendi, eased. Acquiring GVT might have slowed the satellite broadcaster's stock buybacks. GVT, however,
now looms as a stronger rival for DirecTV. Vivendi and ECHOSTAR (SATS) have been in talks over forming a joint venture in Brazil. The JV would combine satellite TV and GVT's broadband
and phone business. Echostar, like Dish Network, is controlled by Charles Ergen. Echostar's stock has shot up 42% in 2013. DirecTV's subscriber growth has slowed in Brazil and the
region. DirecTV said in June that its Sky Brazil unit had overstated subscriber numbers, sending the stock falling. In Q3, DirecTV added 260,000 customers in Latin America, down from 543,000
in Q3 2012. DirecTV stock has weakened on worries of its exposure to Argentina and Venezuela. Some analysts fret that reduced earnings in Latin America might curtail share repurchases.
DirecTV announced a $4 billion stock buyback in February. But Jeffrey Wlodarczak, an analyst at Pivotal Research Group, doesn't see Latin America blocking more share repurchases.
"DirecTV should be able to buy back plenty of stock in 2014, around $3 billion to $4 billion, even with potential currency devaluations (in Latin America)," he said. In Q3, DirecTV
said it added 139,000 U.S. subscribers, up from 67,000 net adds in Q3 2012. U.S. revenue rose 7% to $6.2 billion. Average monthly revenue per user (ARPU) in the U.S., fueled by rate hikes
and new products, rose 6% to $102.40. Revenue in Latin America rose 5% to $1.66 billion but ARPU fell nearly 12% to $49.42, hurt by currency shifts. That pressures DirecTV's buyback
program, says Nomura analyst Adam Ilkowitz. "While (2013) buyback activity is meaningful, we continue to see it falling as leverage rises and the lack of cash repatriated from Latin
America continues," he said in a research report. DirecTV's challenges in Latin America include "inflation-driven growth ... and heightening competition in Brazil," wrote
Ilkowitz. "We expect net subscriber adds to remain weak, offsetting inflationary pricing, to yield slowing constant-currency revenue growth." John Hodulik, a UBS analyst, says the
size of Latin American devaluations will matter. He expects another devaluation in Venezuela after its elections on Sunday. "We estimate DirecTV has more than 2 million subscribers in
Argentina and over 1.5 million in Venezuela, equating to roughly one-third of total subscribers in Latin America. The revenue contribution is similar, but the OPBDA (operating income before
depreciation and amortization) contribution is higher," Hodulik said. DirecTV is No. 2 in Brazil's pay-TV market. Its market share has dipped to 30.2% from about 31% a year ago.
Cable TV firm NET SERVICOS (NETC), controlled by AMERICA MOVIL's (AMX) Embratel unit, leads with 53% share. Also, America Movil has launched a satellite TV service under its Claro
brand. EXPECTS LATAM MISS In March 2012, DirecTV told analysts it expected to reach $10 billion in Latin American revenue by 2016, with 16 million subscribers and earnings before interest,
taxes, depreciation and amortization, or EBITDA, of $3 billion. Citigroup analyst Jason Bazinet expects DirecTV to miss its financial targets, mainly because of currency depreciation. So
does Deutsche Bank analyst Doug Mitchelson. In a report Nov. 25, he estimates 15.5 million subscribers, $7.5 billion revenue, and $2.25 billion in EBITDA in 2016. "This forecast
represents a five-year CAGR of 14.5% subscriber growth, 8.1% revenue growth and 6.3% EBITDA growth — still more than respectable, with low pay-TV penetrations and an expanding middle class
throughout the majority of the region suggesting significant future growth to come," he wrote. Heger, too, is cautious. "With the currency head winds and step-down in net
subscriber additions, I'm not sure investors are going to hold them to $10 billion for Latin American revenue in 2016," he said.