Macquarie Upgrades Dish Network (DISH) to Outperform; Verizon or AT&T could pay US$75/sh+

August 9, 2016 7:08 AM EDT
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Price: $62.16 -0.18%

Rating Summary:
    9 Buy, 13 Hold, 3 Sell

Rating Trend: Down Down

Today's Overall Ratings:
    Up: 35 | Down: 31 | New: 11
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Macquarie upgraded Dish Network (NASDAQ: DISH) from Neutral to Outperform with a price target of $62.00, saying "there’s a bright light at the end of the AWS-3 tunnel. August 16th marks the start of forward auction when all phases – beginning to end – pose as meaningful catalysts to take DISH shares higher."

Analyst Amy Yong highlighted:

#1 A new ~US$3bn convert provides ample liquidity to purchase spectrum in the AWS auction, and bulk up its already substantial ~80Mhz spectrum portfolio. The conversion premium of US$65.18 with hedges up to ~US$86 highlights the intrinsic value of the company and prevents share dilution. Dish aka ParkerB now has up to US$5bn to spend in the auction as well as to pursue other strategic assets including Ligado.

#2 Anything above the reserve price of US$1.25/Mhz-PoP would be meaningful to the stock. The auction is set to raise up to US$88.2bn, pegging spectrum at US$2.21/Mhz-PoP. Our US$62 target assumes a very conservative US$1/Mhz-PoP or US$35/sh; every US$0.25/Mhz-PoP increase in spectrum value equates to a ~US$10/sh increase to our valuation.

#3 Auction postponement or hiccups could make Dish one of few near-term sources of spectrum. The FCC’s US$88.2bn clearing cost could delay the auction past its expected 4Q close.

Upon conclusion of the auction and with the anti-collusion period over, we believe Dish has multiple paths to monetize its spectrum. Our assumption is that Dish would like to position itself as a connectivity company. Thus, separating its spectrum from its core pay TV business is less likely.

#4 Leasing spectrum to a third party and/or build-outs with a partner to meet FCC requirements. These scenarios could generate US$300m-US$800m in EBITDA which would re-rate multiples even higher while leaving some spectrum value at ~US$22/sh. Meanwhile, we assign ~5x to the DBS/Sling TV business, which takes this scenario to ~US$65/sh.

#5 A Dish-T-Mobile merger which could result in PF valuation of ~US$70/sh.

#6 Verizon or AT&T could pay US$75/sh+ for Dish. This assumes a conservative ~20% premium and minimal synergies. For AT&T, we see synergies of US$15-20bn from combining DirecTV with Dish

SI NOTE: DISH has been targeted by short sellers at Kerrisdale Capital

For an analyst ratings summary and ratings history on Dish Network click here. For more ratings news on Dish Network click here.

Shares of Dish Network closed at $51.29 yesterday.

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