Already Up 95%, Dish Network Stock Could Still Hit $40

by Trefis Team
+38.96%
Upside
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Market
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Trefis
DISH
Dish Network
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After a formidable rise of close to 95% since the March 23 lows of this year, at the current price of $35 per share we believe Dish Network’s stock (NASDAQ: DISH) still has some upside remaining. Dish Network’s stock price has rallied from $18 to $35 off the recent bottom compared to the S&P which moved 50%. DISH managed to outperform the broader market as it posted better than expected results in Q2 2020 along with its 5G and postpaid mobile plans being on track. Though the current stock price is almost similar to the level at the beginning of the year, we believe that DISH’s stock is likely to see a rise from here. Marginally lower revenues and a drop in margins due to the pandemic are to be offset by a rise in P/E multiple, as the company continues with 5G expansion and commercial/industrial customers come back to its fold as the current crisis gradually abates. Our dashboard What Factors Drove -26% Change In Dish Network Stock Between 2017 And Now? provides the key numbers behind our thinking.

Some of the stock price decline between 2017-2019 is justified by the 11% decline in Dish Network’s revenues, from $14.4 billion in 2017 to $12.8 billion in 2019, mainly due to lower subscriber-related revenues as an increasing number of users are switching to SVOD (streaming-video on demand) platforms, like Netflix and Amazon. This effect was further accentuated by a 22% decline in profitability, as net income margin dropped from 15% in 2017 to 11.7% in 2019, due to higher subscriber acquisition costs and impairment charges. On a per share basis, earnings dropped from $4.50 in 2017 to $2.92 in 2019.

While the company saw its revenue and profit decline, the P/E multiple increased from 11x in 2017 to 12x in 2019, as the slide in EPS was much higher than the stock price decline during this period. The P/E multiple currently also stands at 12x, which is still higher than levels seen 2 years ago as the market seems to believe that the effect of coronavirus will be offset by the expansion of 5G technology.

Trigger for Upside?

The ongoing crisis has led to a slowdown in industrial and economic activity, which has affected consumer spending power, leading to decreased demand for the company’s offerings, with demand for streaming services from Netflix, Amazon, and Disney increasing significantly, adversely impacting Dish Network. This was confirmed in the Q1 2020 results where we saw that the pandemic caused severe disruption in certain commercial segments served by the company including the hospitality and airline industries. The company lost 413,000 net Pay-TV subscribers in the reported quarter compared with 259,000 lost a year ago. Moreover, DISH lost nearly 281,000 net Sling TV subscribers and 132,000 DISH TV subscribers. However, there seemed to be signs of slight revival as Dish posted better than expected Q2 2020 results. Revenue fell to $3.19 billion in Q2 2020 from $3.21 billion in Q2 2019, but was higher than the expectation of $3.1 billion. Earnings of $0.78/share were also more than $0.60/share in the year-ago period and consensus expectation of $0.59/share. The number of paid Dish TV net subscribers fell by 40,000 in Q2 2020, much lower than the 79,000 net subscriber loss in Q2 2019. Additionally, Dish TV saw 45,000 of the approximately 250,000 commercial accounts, including companies in the airlines and hospitality industries that paused their subscriptions during the early days of the pandemic, resume their service.

The recent surge in Covid positive cases could prove to be an impediment in the path of Dish’s stock price growth. But in the absence of another wave and re-imposition of lockdowns, the company’s expansion plans will continue. Currently, investors seem to be buoyed by Dish closing the acquisition of Boost Mobile on 1st July 2020, which officially marks Dish’s entry into the wireless retail market. Additionally, Dish’s ambitious 5G rollout plan seems to be bearing fruit, with Dish announcing that it hopes to get a 5G network core nailed up in at least one US market in 2020. Having invested close to $11 billion directly to acquire certain wireless spectrum licenses and related assets, the company plans to cover around 70% of the US population by mid-2023. Though the stock has recovered at a healthy rate in the last 4 months, with investors’ focus now primarily shifting to 2021 numbers, we believe expectations of rebound in business and higher P/E multiple due to acquisitions and 5G plans, are likely to drive the stock higher from its current level of $35. Based on Dish Network Valuation, Trefis has a fair price estimate of $40 per share for DISH’s stock, reflecting a potential upside of close to 15%.

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