Is Dish Network’s Stock Fairly Valued?

+102.58%
Upside
5.77
Market
11.69
Trefis
DISH: DISH Network logo
DISH
DISH Network

As Dish Network’s (NASDAQ: DISH) revenue and margins have remained under pressure, the stock has already lost almost 15% of its value over the last six months. Based on its current market price and future growth prospects, Dish Network looks slightly undervalued. Trefis has a price estimate of $39 per share for Dish’s stock, which is higher than its current market price of $35.90 as on January 13, 2020. This reflects an upside of about 9% from its current level.

To understand the major factors that are driving our price estimate for Dish’s stock, view the Trefis interactive dashboard – Dish Network Valuation: Expensive or Cheap? – and alter the key assumptions to arrive at your own estimate for the company’s stock price.

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Company Overview

  • Dish Network is the fourth largest pay-TV provider in the U.S., with 12.3 million Pay-TV subscribers. Dish makes money by charging digital TV subscription fees to customers, selling digital TV boxes, selling premium services like HD and DVR, and by charging advertisers to advertise on some of the channels it carries.
  • The company faces intense competition from Comcast, AT&T, and Verizon. The competition is based on acquiring additional customer/subscriber base.

A] Estimating Total Revenues

Dish Network has seen its total revenues decline by 9.8% from $15.1 billion in 2016 to $13.6 billion in 2018. Revenue is expected to drop further to $12.7 billion and $12.2 billion in 2019 and 2020, respectively. Revenue loss of close to $1.4 billion over the two years would primarily be a reflection of decreasing subscriber count on account of people switching away from traditional cable network, to streaming giants such as Netflix, Amazon, Disney, AT&T, etc.

a) Subscriber-related Revenue

  • Subscriber-related revenue has seen a continuous decline, with the segment losing $1.5 billion in revenues in the last 2 years (2016-2018), primarily due to a constant fall in number of subscribers.
  • With increasing number of users switching to SVOD (streaming-video on demand) platforms, like Netflix and Amazon, subscriber count has continuously decreased from 13.7 million in 2016 to 12.3 million in 2018.
  • This trend is expected to continue, exacerbated by the launch of Disney+ and Apple TV in 2019, which could put pressure on the already dwindling subscriber base, expected to reach 11 million by 2020.
  • Additionally, Univision and AT&T’s removal of certain of their channels from Dish Network’s programming line-up, is also expected to drive subscriber count downward
  • Lower subscriber count and flat ARPU (average revenue per user) is likely to lead to the division losing about $1.5 billion in revenues over the next two years, with segment revenues projected to slide from $13.5 billion in 2018 to $12 billion in 2020.

b) Equipment Sales

To understand how Dish Network’s Equipment sales division is performing and how Dish Network’s revenue trend compares with its major peers, view our interactive dashboard analysis.

B] Estimating Net Income

  • Net Income grew from $1.5 billion in 2016 to $2.1 Billion in 2017 due to one-time tax benefits realized with the implementation of the TCJ Act.
  • This was followed by drop in net income to $1.6 billion in 2018.
  • We expect net income to be around $1.1 billion in 2020. This decline will likely be led by lower margins and declining revenues.
  • Contraction in net income margin is likely to be led by shrinking top line, coupled with rising programming cost per subscriber due to rate increases in certain programming contracts, including the renewal of certain contracts at higher rates, particularly for local broadcast channels.

C] Estimating Earnings Per Share (EPS)

  • EPS has grown from $3.09 in 2016 to $4.02 in 2017 (due to tax benefits realized) before dropping to $3.00 in 2018. We estimate EPS to be $2.06 in 2020.
  • EPS decline from 2018 can be attributed to lower Net Income and increasing share count.

D] Share Price Estimation

  • As per Dish Network’s Valuation by Trefis, we have a price estimate of $39 per share for DISH’s stock.
  • The price estimate is arrived using the discounted cash flow valuation technique, which you can find in Dish Network’s detailed financial model here.
  • Based on projected EPS of $2.06 per share and a stock price estimate of $39 per share, Dish Network’s forward price-to-earnings (P/E) multiple stands at 19x.

To understand how Dish Network’s P/E multiple compares with its major peers, view our interactive dashboard.

 

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