Equity analysts at MoffettNathanson (MN) have downgraded DISH Network with a “Sell” note to investors, which caused a near-immediate 5 per cent fall in the pay-TV broadcaster’s share price. Worse, perhaps, its new target price for DISH is a miserable $29 (currently it’s $35.17 after its fall on August 10th). A year ago, they were trading at a thumping $59. Back in 2014 they traded at $79.
MN admit that DISH’s results last week “on less-bad satellite TV results” were genuinely better, helped by improved churn. Nevertheless, MN says even with a revised set of forecasts it still expects DISH Network to suffer free cash-flow losses by 2022. But MN says that investors are seemingly backing DISH because of its spectrum assets. “And there, the story has gotten worse,” says the analysts.
“In our review of Dish Network’s quarterly earnings just over a week ago, we mused that Dish’s decision tree is bewilderingly complex – there are branches for a host of network construction scenarios, spectrum sales at higher and lower prices, and regulatory wins and losses related to their buildout requirements. But we further observed that all that complexity can be boiled down to one simple proposition: a spectrum sale (and at a price above that which is already implied in Dish’s stock price) is the ONLY positive scenario for the stock. EVERY other scenario, including every variation on a network buildout, is a negative. Unfortunately, those “other” scenarios have only gotten more likely,” states MN.
“To be clear, we’re not suggesting that a spectrum sale isn’t possible; indeed, we backed away from our Sell rating in March precisely because we thought that the odds of a spectrum sale had risen, in part because the stock price had fallen to our target price (which was then, and still is, based on what we believe a buyer would be willing to pay) and in part because Dish’s buildout requirements had created a now-or-never dynamic.”
“Five months later, the stock has round-tripped to below $30 per share and roughly back to where we had upgraded it. Dish’s spectrum holdings are, by our estimate, valued at around $1 per MHz-POP.
That’s about what we think the spectrum is worth, and about what we estimate it was valued at in March,” adds MN.