Here’s Why DISH Network Stock Has 35% Upside

+108.87%
Upside
17.93
Market
37.45
Trefis
DISH: DISH Network logo
DISH
DISH Network

After a rise of over 60% from its March 2020 lows, at the current price of $29 per share, Dish Network stock (NASDAQ: DISH) appears to be a good buying opportunity. Dish Network’s stock price has rallied from $18 to $29 off the recent bottom compared to the S&P which moved 70%. DISH stock has underperformed the market despite the company posting better-than-expected Q2 and Q3 2020 results. Also, the stock is down 22% in the last one year despite revenue increasing 10% y-o-y over the last four quarters. The gradual opening up of the economy is expected to lead to recovery in consumer spending in the coming quarters. This will drive the commercial/industrial customers to come back to its fold as the current crisis gradually abates. Additionally, as the company continues on its track of 5G expansion, revenue and margins are set to improve in 2021. Recent acquisitions (Boost Mobile and Ting Mobile) will also drive growth. These factors provide DISH stock a potential upside of over 35% from its current level. Our dashboard Buy Or Fear DISH Network Stock 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 amplified 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.

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While the company saw its revenue and profit decline, the P/E multiple increased from less than 11x in 2017 to around 12x in 2019, as the slide in EPS was much higher than the stock price decline during this period. The P/E multiple is currently at 10x, which we believe is low and is likely to go up to reach close to 15x, as the benefits of recent acquisitions begin to show in 2021.

Outlook

The coronavirus crisis induced lockdown affected economic activity and hit consumer spending. with demand for streaming services from Netflix, Amazon, and Disney increasing, the demand for Dish’s offerings was adversely affected. This was confirmed in the Q1 2020 results where 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 have been signs of recovery in the last two quarters with the company surpassing analysts’ expectations in its Q2 and Q3 2020 results. Revenue for the first nine months of 2020 increased 14.3% y-o-y. Sharp growth, especially in the third quarter was due to the acquisition of Boost Mobile and Ting Mobile.

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. Any further recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard Trends In U.S. Covid-19 Cases provides an overview of how the pandemic has been spreading in the U.S. and contrasts with trends in Brazil and Russia. 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 on track, with the company planning to cover around 70% of the US population by mid-2023. We believe the positive revenue and earnings outlook is not yet reflected in Dish’s P/E multiple and the stock is undervalued. Recent acquisitions and 5G rollout plans will boost the P/E multiple and the stock price. Based on Dish Network valuation, Trefis has a price estimate of $40 per share for DISH stock. This reflects a potential upside of more than 35% from its current level.

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