Should You Buy Dish Network Stock? 3 Pros, 3 Cons (DISH)

This year hasn’t been a particularly fun one for Dish Network (DISH) shareholders. Although DISH stock finished 2014 strong, shares are down nearly 20% year-to-date, and the outlook from here isn’t exactly compelling.

Should You Buy Dish Network Stock? 3 Pros, 3 Cons (DISH)Underscoring this premise is Wunderlich’s lowered price target on DISH. Already rated a “sell” by the brokerage firm, Wunderlich lowered its target price on DISH stock from $65 to $48 … more than 18% less than where it’s trading now.

And yet, for those investors willing to take a long, thorough look under the hood, the stock’s recent weakness may be a good reason to wade into a Dish Network position.

Dish Network Stock Pros

Per-User Revenue Is Rising: For all the media time that the so-called “cord cutting” phenomenon has garnered, you’d think cable-television providers would be KO’d by now. In reality, however, Dish Network is handling the movement quite well. Last quarter, each Dish subscriber contributed $87.91 worth of revenue, versus only $84.15 in the comparable quarter a year earlier. Although the total headcount fell on a year-over-year basis, total revenue grew nearly 4%, while per-share income was up more than 50%. Maybe the company would be better off doing more with less.

The FCC Is (At Least Somewhat) Quelling Hardball Tactics Against Cable Television Providers: In a turnaround from a previous mindset, the Federal Communications Commission may be whittling away some of the bargaining power local television stations and networks have over distribution venues like Dish Network and giving it back to the middlemen. Case in point? When Sinclair Broadcasting Group (SBGI) blacked out 129 local stations for Dish Network subscribers, the FCC effectively told Sinclair — at Dish Network’s request — to sit back down at the negotiating table. Truth be told, the blackout was a two-way street, but Dish Network played it perfectly to come out looking like the good guy that needed the FCC’s help with unreasonable networks.

Sling TV Is Working: While it wasn’t seen by many as a game-changer when first unveiled, the completely portable television content venue from DISH is catching on. Granted, Sling TV seems to be cannibalizing some of Dish Network’s core business, growing from a confirmed 169,000 subscribers at the end of the first quarter to an estimated 250,000 by the end of Q2. Though the service only costs $20 per month, last quarter’s profit growth suggests that’s a high-margin $20. And, in that Sling TV offers the a la carte channels most cord-cutters say they’re looking for anyway, Dish Network may be well served by promoting that alternative.

Dish Network Stock Cons

DirecTV and AT&T have teamed up… With most permissible mergers in the telco space already done, the next achievable synergies will be realized by the pairing of similar-but-still-different businesses like the recent union of DirecTV and AT&T (T). DirecTV subscribers have already seen plenty of promotions encouraging them to become AT&T wireless subscribers. The promotion that owners of DISH stock need to fear most, however, is when AT&T subscribers who also happen to be Dish Network subscribers start to get better offers for DirecTV’s service.

… And Dish Network Won’t Likely Have a Partner Anytime Soon: Even before the melding of AT&T and DirecTV was on the table, a merger of Dish Network and T-Mobile (TMUS) had been toyed with, and largely for the same reason — to cross-market each other’s service. Now, however, that union is considerably less likely, as Dish Network’s recent purchase of FCC-regulated radio-frequency spectrum is going to cost $3.3 billion more than DISH was planning on paying. Why? Because the FCC says the small-business price break can’t be claimed by Dish Network. That bad news only exacerbates another key problem weighing on the value of DISH stock.

Dish Network’s Debt Is Getting Unwieldy: As of the latest look, DISH holds about $12.2 billion worth of long-term debt. That’s a lot for a $27.25 billion company. It’s so much, in fact, that Fitch lowered its credit rating on DISH to BB and added the company to its list of companies to watch closely — with an eye for problems — until some of the debt matters are cleared up. The rating will make it more difficult to do a deal with T-Mobile and/or pay the additional $3.3 billion for the FCC’s wireless spectrum, but even without those factors, the company would still be buried in too much debt.

Bottom Line

The company isn’t in the dire straits most of the market seems to think it is. However, given that there are so many better opportunities out there, the pros and cons seem to balance against DISH.

In other words, Dish Network is a name best left avoided for now, at least until it deals with its debt headwind and proves it can consistently grow the top and bottom lines again … largely on the back of Sling TV.

That, however, could take a while.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

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