With some companies, focusing on net revenue and earnings per share Street beats is core to determining just how healthy a company is. But, that’s not the arbiter for investors of Dish Network stock.
In the case of Dish, subscriber gains or losses is key to where the company’s health is, even as it swiftly tilts away from DBS television services to 5G telephony player. And, with the revelation Monday that Dish lost more subscribers than financial analysts expected, the company’s stock slumped.
That dip in value will likely continue in the short term, as a key analyst just downgraded DISH on that poor subscriber report.
Jeffrey Wlodarczak, the Principal and Entertainment/Interactive Subscription Services Analyst at Pivotal Research Group, reduced DISH’s target price.
But, he’s not so much looking as the subscriber churn as he is the growth trajectory for wireless services.
That is why Wlodarczak says lowering the target price for DISH was driven by the decision to increase the discount rate in Pivotal’s discounted cash flow (DCF) for DISH’s wireless business from 12% to 15%, utilizing a 12-times 2030 EBITDA multiple.
He points to “likely investor uncertainty” around Dish’s outlook — one that would likely be “significantly reduced” with a sizeable investment from a large Internet player or if Dish head Charlie Ergen “would share an optimistic vision” for its 5G rollout.
Pivotal also reduced its target value for Dish’s “skinny bundled’ virtual MVPD, Sling, from 1X to 0.5X revenue, while leaving its “conservative” 4.0X 2021 EBITDA target on the Direct-to-Home television business.
The big picture concerns for Wlodarczak are a “declining annuity” in Dish’s core DTH business, which fell at a slower than expected pace. There’s also a “likely transition year and a half” at Boost Mobile as “unprofitable” subscribers are culled, along with potential concerns about Dish’s spending in the upcoming C-Band auction conducted by the FCC.
However, it is the later-than-expected launch of wireless that has prompted Wlodarczak to tell investors that patience is required. As such, Pivotal lowered its target price on DISH from $40 to $34 and reduced its rating on the stock to “HOLD.”
“Importantly, we remain as optimistic as ever about the long-term upside from Dish’s differentiated wireless efforts, but realistically we believe [that] without an outside investor in wireless, which we had expected in the first half of 2021, the fact that Ergen seems unwilling to talk up DISH’s wireless efforts, concerns about investor reaction to DISH’s participation/lack of participation in the upcoming C-Band wireless disclosure, and reasonable likelihood of a hiccup on Dish’s second half of 2021 wireless launch, we expect the stock to at best trade sideways around $30 for at least the next four to five months,” Wlodarczak says.
Investors immediately responded, with Dish shares finishing Tuesday’s trading at $30.95, down 4.1%.
The 1-year target price consensus had been $40.53.
While Dish reached as high as $37.17 in early December 2020, a $30 price target is not wholly unrealistic for Dish, as it had been trading in the mid-$30s since May 2018.
