Dish Shares Fall Into an Upgrade

Shares in Dish Network have, in a sense, fallen upwards, at least when viewed through the lens of a top industry analyst.

Craig Moffett, analyst with MoffettNathanson LLC , upgraded Dish Network LLC (Nasdaq: DISH) from "Sell" to "Neutral" on Thursday, reasoning that shares in the company have fallen far enough that the price reflects both an upside risk should Dish decide to sell its spectrum, and a downside risk if the company opts to move ahead with an expensive 5G network buildout.

As a result, the risks and rewards of owning Dish shares have finally equaled out, the analyst concluded.

Moffett noted that the logic behind the earlier "Sell" rating came from "commonplace" recommendations that valued Dish's spectrum at $3 per MHz-POP, while Moffett believed then (and still believes now) that it's worth a "bit less" than $1 per MHz-POP. Moffett said that his valuation on that spectrum implied a target price of $38 back when Dish shares were trading as high as $70.

But the issue there wasn't that the spectrum was overvalued, but that the methodology of valuing spectrum on a price per MHz-POP basis "was only appropriate if the spectrum was going to be sold," Moffett explained. "Sure, it might be sold. But a sale was only one of many possible outcomes, and all other options were and are much less attractive."

Dish shares have been in the mid-$20 range of late (they were up 1.66% to $26.31 at last check Thursday), and the price balances out the downside and upside risks, as it should, Moffett wrote.

"In the absence of a spectrum sale, Dish's shares will likely fall further," he predicted. "But if there were to be a spectrum sale, it would now likely happen at a price meaningfully above where the shares are trading."

Alongside the upgrade, Moffett is keeping the target price on Dish at $29. That target, adopted in August 2018 (and cut from an earlier target of $37), represents the analyst's weighted average of the possible outcomes -- a "relatively arbitrary" 50% probability of a spectrum sale at $1 per MHz-POP (implying a share price of $38), and a 50% probability of all other outcomes, including a 5G network buildout, with an assumed valuation of $19 per share.

Last August, Moffett suggested that a spectrum sale was the only positive scenario for the stock, even as Dish remained steadfast that such a sale is not currently an option being weighed as it instead moved on the buildout plan. Dish has expressed confidence that it can meet a buildout commitment that includes the first phase of a "stand-alone" 5G-capable network, initially focused on narrowband IoT services, by March 2020. (See Dish: We Can Meet Wireless Buildout Schedule.)

"We've never missed a final buildout deadline, and we're not going to miss this one," Charlie Ergen, Dish's chairman, said on the company's Q3 call in November. "And we have competitors who would love to have our spectrum."

Moffett has already argued that the window for a spectrum sale before Dish's March 2020 AWS-4 buildout deadline is already closed, because there's not enough time for a buyer to clear the necessary regulatory hurdles and still meet the spectrum's buildout conditions. The analyst says it's also not clear if a sale of Dish's spectrum to players such as Verizon or AT&T would be allowed because the licenses were originally granted under the belief that they would help to spawn new competition to rise against the market incumbents. (See Dish's Window to Sell Spectrum Has Closed, Analyst Says .)

— Jeff Baumgartner, Senior Editor, Light Reading

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