Pay-TV Provider Makes Tasty DISH

6/13/2011


  Recent Price
$29
  Dividend
$0.00
  Yield
0.0%
  P/E Ratio
10
  Shares (millions)
449
  Long-Term Debt as % of Capital
110%
  52-Week Price Range
$30.50 - $17.33

DISH Network ($29; DISH) provides its more than 14 million subscribers a lower-cost brand of satellite TV. Its average subscriber pays 15% less than DirecTV ($48; DTV) subscribers. While DISH's average charge is about 5% more than the average charged by its three largest publicly traded cable competitors, it is competitive in most markets while offering more high-definition programming options.

Like its service, DISH's shares seem attractively valued. At 10 times trailing earnings, the stock trades at a 33% discount to its five-year average and 47% below the average cable or satellite stock in the S&P 1500 Index. Should DISH meet the 2011 consensus profit estimate of $3.16 per share and its P/E simply holds steady, the shares stand to gain 30% by early next year. DISH also boasts improving Quadrix® scores, widening profit margins, and steady sales growth. The stock is a Buy and Long-Term Buy.

Business breakdown

At the end of March, DISH's subscriber base had slipped 1% from the previous year, eroded by competitors' heavy promotional activity. But DISH added 58,000 net subscribers in the March quarter, well above Wall Street expectations. Average revenue per user climbed 6% to $75 in the quarter. The company said that as of early May, price increases from February had not caused a major increase in churn (subscriber defections).

Although still far smaller than its chief rivals, DISH has expanded with a pair of deals this year. DISH completed its acquisition of Blockbuster in April for $226 million in cash. DISH also agreed to purchase satellite concern DBSD North America for about $1.5 billion, gaining a slice of nationwide wireless spectrum.

In April, DISH settled a longstanding patent lawsuit with TiVo ($10; TIVO), agreeing to pay $480 million, less than the $517 million it reserved for that purpose in the December quarter. The TiVo settlement clears a threat that had loomed over the stock for years. But DISH must still contend with a $2.5 billion lawsuit filed by Voom HD Holdings. In 2008, Voom claimed that DISH breached a contract when it stopped carrying 15 high-definition Voom channels. Voom declared bankruptcy in 2009.

Conclusion

Within the maturing pay-TV industry — about 90% of U.S. households pay for TV service — discounting could pick up as competitors raid each other for customer defections. But Wall Street appears bullish about DISH's near-term growth. The consensus calls for per-share earnings to jump 44% for the year, and estimates are rising.

Charles W. Ergen, DISH's chairman, owns a 54% equity stake in the company and holds more than 90% of the voting power. That much control for one man adds risk to the shares. Also boosting the risk is the balance sheet, which contains $3.09 billion in total debt, net of cash. However, net debt declined by $1 billion over the last year as DISH built up cash, and interest payments are well-covered by earnings.

An annual report for DISH Network Corp. is available at 9601 S. Meridian Blvd., Englewood, CO 80112; (303) 723-1277; www.dishnetwork.com.

 

DISH NETWORK
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Mar '11
1.22
vs.
0.52
+ 5%
24.76
-
19.38
11 - 9
Dec '10
0.56
vs.
0.40
+ 8%
21.50
-
17.95
11 - 9
Sep '10
0.55
vs.
0.18
+ 11%
20.93
-
17.33
13 - 10
Jun '10
0.57
vs.
0.14
+ 9%
24.16
-
17.98
19 - 14
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2010
12.64
2.20
0.00
24.16
-
17.32
11 - 8
2009
11.66
1.42
0.00
22.18
-
8.79
16 - 6
2008
11.62
2.01
0.00
36.11
-
8.34
18 - 4
2007
11.09
1.68
0.00
52.54
-
36.38
31 - 22
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
96
80
80
72
43
92
95

   * Earnings exclude special items.
   † Quadrix® scores are percentile ranks, with 100 the best.


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