Dish Could Be Catapulted by Web TV, JPMorgan Says

NEW YORK (The Street) -- Dish Network's (DISH) entry into the Web TV market, coupled with its command of the traditional broadcast spectrum market, are positioning it for future growth, a JPMorgan report says.

After a meeting the investment bank had Tuesday with Dish CEO Charlie Ergen, JPMorgan set its six-month price target for the Englewood, CO.-based satellite provider at $86 a share and its rating at overweight.

One key factor in the projection was Dish's Sling TV, a product meant to entice viewers away from traditional cable subscriptions. Rolled out in January, the service allows customers to stream any of 22 channels, including ESPN, for $20 per month. Sling also has add-on packages priced at $5 a month, and offers subscribers access to HBO for an additional $15 a month.

That price is in the middle of competing services, including Time Warner's (TWX) HBO Now at $14.99 per month and Sony's (SNE) Vue at a minimum of $50 a month.

The potential for growth in that product, plus Dish's abundance of wireless spectrum, could create a winning combination when attracting customers.

"Dish argues, and we agree, that the current share price doesn't account for the potential growth in Sling video, instead focusing on the flat-down [Direct Broadcast Satellite] business which seems to be run more for cash than growth," JPMorgan analysts Philip Cusick and Eric Pan wrote in their report.

Despite its licensed ownership of key portions of the wireless spectrum, Ergen told JPMorgan his company doesn't have any plans to create its own wireless network. Instead, Dish described four options for the company's wireless presence -- partnerships with other companies, acquiring other companies, wholesaling its wireless capacity, or selling it in smaller pieces.

Ergen estimates Dish's spectrum portfolio is worth about $60 billion, according to the report. A JPMorgan estimate values the same holdings at $35 billion.

The analysis didn't take into account merger talks between Dish and T-Mobile US (TMUS) reported early Thursday in The Wall Street Journal.

But in the report, Cusick and Pan also said, "Ergen does not seem to feel urgency to do any of the above near term given the 5-year runaway before any buildout requirements." Instead, JPMorgan said, Dish is focused on short-term options. No other details were given on what those might be.

Dish shares were up about 5% Thursday at $74.53, while the year-to-date gain stood at 2.5%.

For the first quarter, Dish reported a revenue increase of 2.8% over the same quarter last year. Earnings per share doubled over the same period to 76 cents a share. Subscriptions for Dish's satellite TV service dropped 2.1% to 13.8 million in the first quarter of 2015 compared with the same period in 2014. Broadband subscriptions moved the other way, edging up 2.4% to 591,000 quarter over quarter.

Meanwhile, another merger in the wireless industry, this one between AT&T (T) and DirecTV (DTV), is poised to add value to AT&T if the deal goes through as expected, a separate report from JPMorgan said Thursday. Cusick and Pan upped their price target for the wireless carrier from $35 to $40 per share and its 2016 earnings per share from $2.50 to $2.80, anticipating cost savings from the merger.

On Tuesday, AT&T stock price inched higher, rising about 1% to $35.38, as it seemed increasingly likely that federal regulators would approve the deal with DirecTV.

TheStreet ratings team gives Dish a B- and a buy rating. Here's what they have to say:

"We rate DISH NETWORK CORP (DISH) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, revenue growth, good cash flow from operations, solid stock price performance and impressive record of earnings per share growth. We feel its strengths outweigh the fact the company shows low profit margins."

View the full report here: DISH full report

 

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