DISH Network (DISH) Gains on Bullish Analyst Comments

(Updated - June 1, 2015 11:54 AM EDT)

DISH Network (NASDAQ: DISH) is gaining Monday following positive comments from Wells Fargo analyst Marci Ryvicker. The analyst sees 60-75% potential upside in the stock "no matter how you slice it."

Ryvicker said now that CEO Charlie Ergen has his war chest complete, it is now just a waiting game to see how and when the wireless strategy actually takes hold.

With shares languishing in the high $60’s/low $70’s, the analyst said it is clear that short-term investors have "thrown in the towel". Meanwhile, those still involved are expecting one of four options to play out: 1) entry into wireless via a partner; 2) entry into wireless via acquisition; 3) wholesale lease(s); and/or 4) a sale of all/part of the business.

While admittedly the analyst does not know the final outcome, the firm's positive thesis on the stock has been predicated on a belief that i) the intrinsic value of this company is well above the current stock price, and ii) Charlie has every incentive (given his +50% economic interest) to realize that value over time.

Given the firm's beliefs don't seem to be good enough, they examined every option mentioned above and they found that no matter which options is selected by the company, there is anywhere from 60-75% of potential upside to DISH from here.

The analyst's look at the four available options:

• OPTION 1: Entering wireless via partnership equates to $119/sh. We view this as the most likely option, and TMUS (J. Fritzsche), S (J. Fritzsche) or both as the most likely partners. In this scenario, we had to come up with products that such a combo might offer. Doing the math, we get incremental partnership revenue/EBITDA/FCF of $11.3B/$4.4B/$2.2B (averaged over 10 yrs) – add this to the core business and we get $119/sh. - 68% potential upside.
• OPTION 2: Entering wireless via acquisition equates to $120/sh. Based on the most public of documents, it wouldn’t be a stretch in our view to see a permanent DISH-TMUS combo. We created a PF model assuming a purchase price in the $40’s - (80% cash/20% equity; less than 7x sellers’ multiple and 6x PF buyers multiple) plus debt, with PF revenue/EBITDA/FCF of $60B/$17B/$4B by year 3. Here, we value NEW DISH at $120/share - 69% potential upside.
• OPTION 3: Pursuing wholesale lease(s) equates to $114/sh. This was tough since DISH doesn’t own a network; so we had to assume a 50/50 revenue share with the network host. Making a lot of complex assumptions using traffic forecasts provided by Cisco (J. Lubert), we get $114/sh. - 61% potential upside.
• OPTION 4: A sale of whole/part of business equates to $124/sh. We have never truly believed that this would be the final option– BUT we quantify it anyway since A LOT of people DO believe. On an after-tax sum of the parts basis, we get a total equity value of $57.4B, or $124/sh. - 75% potential upside.

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