Spectrum Split Thesis is Looking Increasingly Likely for DISH

Disclaimer– This article is for informational purposes and does not constitute financial or other advice.  Please consult with your financial advisor before making any investment decisions.  Please read full disclaimers here.  Author of this article owns DISH stock.

Follow us by email or Twitter on the right side of screen – new articles published 1-2x per week


On July 24th, Divergent View wrote that DISH’s options are increasingly pointing towards a spin-off of its spectrum portfolio into a separate company.  Our original article can be found here but can be summed up in the first paragraph of our July 24th article:

“Long-term investors are being given an excellent opportunity to take advantage of short-term weakness in DISH Networks (DISH), which is currently trading at $66 but is worth well over $100.  Recent events are narrowing the options that Ergen may ultimately pursue, and as a result, a spin-off of the spectrum is becoming an increasingly viable option for DISH.”

Today, DISH reported Q2 earnings, and on the conference call, Charlie Ergen, CEO of DISH, pointed investors towards a split of spectrum as becoming a more likely outcome for the company:

  • Charlie Ergen- “And it looks like it may be more attractive at some point to split our video business away from our spectrum business.”
  • Charlie Ergen- “…ultimately we’re going to run this company for shareholders and make the best economic judgment we can make regardless of where our passion would be”

DISH stocked reacted favorably, currently up 4.5% on this news, but I believe DISH stock is still materially undervaluing DISH’s spectrum portfolio, and a number of catalysts are now lining up to close the valuation gap between the DISH publicly traded spectrum value and its true value.

Catalysts

  • The denial of DISH DE bidding discounts of $3Bn– the FCC has not approved the final order to deny DISH’s bidding discounts. Once these discounts are actually dis-allowed, investors will have greater clarity on DISH’s path forward.  From the tone of the call, it appears that DISH may be less likely to sue since DISH would prefer to have the flexibility to lease or sell the AWS-3 spectrum (leasing or selling the AWS-3 spectrum would be dis-allowed if the discounts were approved).
  • Election of downlink of AWS-4 spectrum– by June 20, 2016, DISH must elect whether or not it wants to convert its AWS-4 spectrum position to be all downlink. Since downlink spectrum is materially more valuable than uplink spectrum (more data is downloaded vs. uploaded), this would allow DISH to create value by pairing AWS-3 uplink spectrum with AWS-4 downlink spectrum.
  • Spectrum Spin-off– once we have clarity on the bidding discounts, DISH will likely want to move quickly to pursue a spectrum strategy in order to align themselves with the buildout schedule of the wireless carriers and also since there is a big carrying cost of the spectrum due to the debt accumulated to purchase the spectrum. The spin-off the spectrum is the primary catalyst that has the ability to re-rate DISH stock to north of $100.

Below, I re-post my valuation for where DISH stock may trade if the market re-prices DISH spectrum to $2.00 MHz/POP, which justifies a stock price of at least $100.

DISH-Spectrum

DISH remains a great risk/reward set-up given its undervalued spectrum portfolio, and today’s earnings call suggests Ergen will pursue a path towards realizing this value.



Categories: Stock Views, Tech

Tags: , , , , , , , , , ,

%d bloggers like this: