Summary:

Sure, the satellite TV service faces rising programming costs, flattening subscriber growth and an obsolete one-way broadcast platform here in the U.S. But Sanford Bernstein senior analyst Craig Moffett told investors this week they’re not seeing the company’s huge growth potential in Latin America.

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DirecTV is saddled with rising program-licensing costs and slowing subscriber growth in the U.S., not to mention an obsolete one-way broadcast platform that lacks any broadband-delivery capability.

But Sanford Bernstein senior analyst Craig Moffett says he’s turned bullish on the satellite TV service. And in a memo to media investors Thursday, he suggested the company’s stock is significantly under-valued. (DirecTV closed trading on the Nasdaq Friday priced at $43.92 a share; Moffett has set a price target of $55 per share.)

The reason is one I’ve been harping on for several months — DirecTV’s significant investments in Latin America over the past several years have made it, amid a saturated U.S. pay TV market, different. And the strategic growth model DirecTV has created is the key reason why we think the investor community should also have a greater appreciation for the near-term losses Netflix is experiencing as it boldly attempts to become the first over-the-top service provider to pave the Latin American region.

For DirecTV, Moffett explains, “The U.S. really just has to stay out of the way, because it’s Latin America, not the U.S., that is the crown jewel.”

Also read: DirecTV adds another 600,000 Latin American users in Q1

As Moffett notes, DirecTV actually has three separate businesses in Latin America: a wholly-owned Pan Americana operation that serves Argentina, Chile, Colombia, Venezuela; it owns 93 percent of Sky Brazil; and it owns a minority stake in SkyMexico.

In all three areas in which these businesses operate, he adds, pay TV penetration is low, and there’s room for growth amid a growing middle class that can suddenly afford a satellite subscription bill and views DirecTV as an aspirational brand.

Moffett’s report also notes that DirecTV Latin America is currently generating a 54.2 percent return on capital investment vs. only 46.4 percent for its U.S. operation. By 2015, he projects that LatAm will account nearly 30 percent of DirecTV’s overall revenue (vs. the current level of 18.7 percent).

“The satellite business generates tremendously high returns on capital,” he writes. “Once you’ve got the bird in the air, each incremental customer is gravy.”

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