Is EchoStar Worth More in Parts?

EchoStar (DISH) has completed the spin-off of its set-top box business into a new a company called EchoStar Holding Corp., which trades under the symbol (SATS). The parent company, which now consists primarily of its satellite TV broadcasting business, will change its name to DISH Network Corp., and keep DISH as it stock symbol.

The deal so far looks like a net positive for DISH holders. On Monday, DISH shares closed out the year at $37.72. Holders then received 0.2 shares of SATS for each DISH share held. Right now, DISH shares are trading at $31.88. SATS shares are trading at $35.66. The combined value of the two pieces is $39.01, a gain for holders who kept both pieces of $1.29, or 3.4%. (That’s one share of DISH plus 0.2 shares of SATS).

The transaction raises several questions. Jamie Towsend, an analyst with research firm JRPG, remains bullish on DISH. He thinks the company will roll out triple-play and quadruple-play service packages this year, making it more competitive with the cable industry. And he says it is still possible that DISH could eventually be acquired by AT&T (T), though speculation on such a deal has cooled as Ma Bell has talked up the prospects for its U-verse IP television service. There has also been some renewed speculation that the spin-out could even lead to a merger between DISH and DirecTV (DTV).

As for the spinoff, which includes the company’s set-top box business as well as recently acquired Sling Media, Townsend says he is less certain how to value the company. He contends that the set-top box business is not a particularly attractive business; and I certainly have to wonder whether DISH competitors will want to buy boxes from a company controlled by Charlie Ergun. (He holds voting control of both DISH and SATS.)

Stifel Nicloaus analyst Kit Spring asserted in a note this morning that SATS could trade at $41-$65 a share, or about 1-2x revenue. Spring notes that the business will be about 85% set-top boxes and 15% fixed satellite services, with about 87% of revenue from DISH. “Echostar has disclosed little about SATS in terms of market share, growth rates, pricing or volume trends, spare capacity on satellites, etc.,” he writes. “Thus we expect volatility may be high over the next few days especially in light of post-holiday timing which may have impacted investor due diligence.” He puts the post-spin value of DISH at $30-$32.