Dish Network Corp (NASDAQ:DISH) is facing quite a bit of scrutiny as the company prepares to release its first-quarter earnings figures early next week. Specifically, DISH has come under fire for receiving $3 billion in discounts during a public airwaves auction earlier this year.
Congress has promised to thoroughly review the bidding process, and a negative outcome could be costly for Dish Network stock.
Ultimately, any judgment handed down from Congress or the FCC will factor into DISH’s guidance. First-quarter earnings, meanwhile, are expected to fare relatively well, year-over-year. Currently, Wall Street is expecting DISH to report a 5.3% rise in earnings to 40 cents per share, with revenue seen advancing 4% to $3.74 billion.
The real potential driver for an earnings surprise out of DISH lies with the company’s Sling TV service. Launched late in the fourth quarter, Sling TV has been busy making deal with major content providers and raking in subscribers. In fact, subscriber growth for Sling TV could provide a major catalyst for any reaction out of DISH stock.
On the sentiment front, the brokerage community has remained cautious in its outlook on DISH. According to data from Thomson/First Call, 15 of the 25 analysts following DISH stock rate it a “hold” or worse, compared to just 10 “buy” ratings. That said, the 12-month consensus price target of $81 per share represents a healthy premium of about 21% for DISH stock.
Bearish sentiment fades away when we turn our attention to the options pits. Specifically, DISH’s May/June put/call open interest ratio of 0.54 indicates that calls practically double puts among options set to expire within the next two months. Furthermore, this ratio plunges to a reading of 0.15 when we focus solely on May options, which expire at the end of next week.
In other words, options traders appear to be betting big on a rally from DISH following next week’s earnings report.
Click to Enlarge Overall, May implieds are pricing in a potential post-earnings move of about 7.3%. This places the upper bound at $71.90, while the lower bound lies at $62.10.
Technically, DISH stock has been in decline mode for the better part of the past quarter. That said, the shares are now oversold and a positive quarterly report could go a long way toward bolstering short-term buying pressure.
2 Trades for DISH Stock
Call Spread: For those looking to join with the bullish crowd in the options pits, a May $67/$72 bull call spread has a lot of potential. At last check, this spread was offered at $1.10, or $110 per pair of contracts. Breakeven lies at $68.10, while a maximum profit of $3.90, or $390 per pair of contracts, is possible if DISH stock closes at or above $72 when May options expire.
Put Sell: Alternately, those traders worried about a Congressional investigation or the stock’s lagging price action might want to consider a May $61 put sell. At last check, this put was bid at 31 cents, or $31 per pair of contracts. As long as DISH closes at or above $61 when May options expire at the end of next week, traders will retain any premium received. Should DISH trade below $61 ahead of expiration, however, traders could be assigned 100 shares of DISH for every contract sold at a cost of $61 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
