Dish Network started out as a satellite TV operator but is morphing into wireless carrier.
Justin Sullivan/Getty ImagesDish Network stock dropped on Wednesday after an analyst downgrade, stoking the debate on Wall Street about the future of the satellite TV operator-turned-wireless upstart. Dish is betting investors’ capital on becoming the fourth national powerhouse in the competitive mobile phone market—alongside Verizon Communications, AT&T, and T-Mobile US.
Shares of Dish (ticker: DISH) were down more than 5% on Wednesday afternoon, to around $41 per share. The stock had climbed 27% year to date, versus a 13% return for the S&P 500.
J.P. Morgan analyst Philip Cusick cut his recommendation to the equivalent of Sell from Neutral on Wednesday, but lifted his year-end price target on the shares, to $45 from $38. Cusick’s concerns included include a full valuation of the stock and the company’s uncertain path to becoming a successful wireless phone provider.
“First, building a wireless network is very hard and there is a long history of new networks with coverage/quality problems in the first few years,” wrote Cusick. “Second, we believe that Dish, with only ~114 MHz of spectrum, will struggle to succeed against carriers with 2-3 times that much, or be forced to buy substantially more spectrum in future auctions, which it doesn’t have funds for now.”
Finally, Cusick worried that Dish may be too far behind the established carriers to catch up in the race to 5G.
Dish facilitated T-Mobile’s (TMUS) acquisition of Sprint, which closed last spring. Under an agreement with federal regulators, the merging companies had to divest—to Dish—some spectrum licenses and the Boost Mobile prepaid brand with its 9 million subscribers. They also had to provide Dish with a seven-year wholesale arrangement to use the new T-Mobile’s network while it rolls out its own. The goal was to preserve a U.S. wireless industry with four nationwide players.
Dish’s plan has been to build a software-powered 5G network, which it believes will yield it a unit-cost advantage against the established providers. The company expects to launch its first coverage in Las Vegas this year.
But there’s little agreement on Wall Street about Dish’s odds of success. Verizon (VZ), AT&T (T), and T-Mobile are investing heavily in their own 5G roll-outs—and a competitive nationwide network will require tens of billions of dollars in capital spending by Dish before revenues can begin to ramp up.
There are some advantages to Dish’s greenfield approach and its sweetheart mobile virtual network operator, or MVNO, deal with T-Mobile. A partnership with Amazon.com’s (AMZN) Amazon Web Services on the future network was another key development, although financial details of the arrangement weren’t disclosed.
“Our biggest hesitation in downgrading Dish is the potential for an Amazon partnership, some kind of ‘Prime Wireless’ offer, which has been long speculated on in the press,” wrote Cusick. “But with the questions of quality, scale, and differentiation we don’t see how that would make sense for 2-3 years at least.”
Then, there’s the Dish satellite TV business, which isn’t exactly a growth business in the age of cord-cutting. But it’s still a cash cow, and subscriber losses have slowed lately from their steepest declines. An often-speculated divestment of that segment and eventual merger with DirecTV—currently in the process of being spun out from AT&T—could create some value, but that path is far from certain as well, Cusick writes.
The puts and takes and inherent uncertainty about Dish’s future are evident in Wall Street analysts’ price targets, which range from $15 to $88 a share. Their average target is just over $46, compared with the stock’s current levels around $41.
The debate over Dish’s future won’t be settled any time soon. Plenty of investors will want to see progress—or lack thereof—on the company’s wireless plans before making a call.
Write to Nicholas Jasinski at Nicholas.Jasinski@barrons.com
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June 10, 2021 at 12:41AM
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Dish Network Drops as Wall Street Debates Its Wireless Future - Barron's
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