The Zacks Analyst Blog Highlights: DirecTV, AT&T, Time Warner Cable, Comcast and Dean Foods

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May 14, 2014, 09:30 ET

CHICAGO, May 14, 2014 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the DirecTV (Nasdaq:DTV-Free Report), AT&T (NYSE:T-Free Report), Time Warner Cable (NYSE:TWC-Free Report), Comcast Corp (Nasdaq:CMCSA-Free Report) andDean Foods Company (NYSE:DF-Free Report).

Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

Here are highlights from Tuesday's Analyst Blog:

AT&T and DirecTV: Mega-Deal in the Works?

News of a potential buyout of DirecTV (Nasdaq:DTV-Free Report) by AT&T (NYSE:T-Free Report) emerged May 1, while information regarding the specifics are ranging, there seems to be massive traction over the past few days. It has been reported (WSJ, Bloomberg, Reuters), that the purchase could be completed within the next few weeks.

The reports state that AT&T is looking at a price range between the mid $90's to $100 per share of DirecTV stock. Which means the total price would be between $48 billion and $50 billion (most likely, the deal will end up in that range). This data could slightly change due to the fact the numbers have yet to be finalized.

There is an obvious correlation to the recent Time Warner Cable (NYSE:TWC-Free Report) and Comcast Corp (Nasdaq:CMCSA-Free Report) merger, and AT&T's vigorous attempt to purchase the second largest pay-TV subscriber base in the country. The buyout would increase AT&T's wireless spectrum, and enables them to compete with the now massive Comcast Corp.

This deal has been smoldering for about 10 years, as the two companies have been looking into a potential merger, or a buyout by both companies. But with the recent Time Warner Cable, and Comcast merger, the environment seems perfect now.

This buyout makes sense for both companies; satellite TV has been declining, and DirecTV has not been purchasing spectrum of late (unlike their direct competitor Dish Network, who has been purchasing spectrum). DirecTV has also seen top line growth become stagnate, and margins have been declining since Q4 2012. Therefore, this would be an opportune time for them to sell at a premium to AT&T.

AT&T has spectrum (the company will also increase their spectrum with the acquisition of DTV), and will add broadband to DirecTV customers. AT&T, has a strong balance sheet and carries a debt to capital ratio of 46.6% (as of March 31). Therefore, they can easily afford this deal.

Both AT&T and DirecTV have seen their stock rise since the news first broke on May 1; AT&T has risen 2.78% while DirecTV has risen 7.92% as of the closing bell May 12. Currently, AT&T carries a Zacks Rank #3 (Hold), and DirecTV also carries a Zacks Rank #3 (Hold).

Finally, this deal will face scrutiny from Federal regulators due to the consolidation of the industry. So this deal will most likely face a prolonged campaign to ensure the buyout adheres to all regulations.

Dean Foods Falls to Strong Sell

On May 13, 2014, Zacks Investment Research downgraded the global consumer products company, Dean Foods Company (NYSE:DF-Free Report), to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

Shares of Dean Foods slipped nearly 9% after it reported dismal first-quarter 2014 earnings on May 8, 2014.

The company's bottom line was mainly hurt by high raw milk prices, which resulted in an adjusted loss of 5 cents per share from continuing operation compared with adjusted earnings of 31 cents in the year-ago comparable quarter. Moreover, it missed the Zacks Consensus Estimate of 2 cents per share.

Though the company's top line surged 2.1% year over year and went ahead of the Zacks Consensus Estimate, the positive sales results did not carry down to the income statement as operating income declined on a comparable basis from a year-ago.

Adjusted operating income for the quarter decreased 90.8% to $6.9 million from the prior-year figure of $74.2 million. Consequently, Dean Foods' adjusted operating margin for the quarter contracted 290 basis points (bps) to 0.3% from 3.2% a year-ago.

The year-over-year decline in operating income was primarily due to higher raw milk prices. The raw milk cost of Class I Mover registered a year-over-year increase of 22% and touched an all-time quarterly high of $22.38 per hundred-weight.

Looking at the current industry volume trends, Dean Foods expects higher raw milk prices and weak volumes in 2014. Therefore, the company has lowered its earnings guidance for 2014 to 60 cents per share from the earlier projected range of 73–86 cents per share. Furthermore, Dean Foods expects to report adjusted loss in the range of 2—8 cents per share for the second-quarter of 2014.

The company's dismal results and a discouraging guidance triggered a downtrend in the Zacks Consensus Estimate, as analysts became less constructive on the stock's future performance. The Zacks Consensus Estimate for fiscal 2014 fell 24.1% to 60 cents in the last 7 days, while the second quarter estimate moved in the negative territory to a loss of 5 cents from earnings of 17 cents projected earlier.

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