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We previously maintained a more or less neutral stance on Dish Network's (NASDAQ:DISH) stock due to several mixed factors affecting its business. In our opinion, while the subscriber trends could potentially show improvement, the TiVo dispute settlement was already reflected in the market price and there was uncertainty around Dish's plan with its acquired wireless assets. Not much has changed since then, except that expectations on subscriber improvements have changed into reality with a positive shock. The Q1 2012 earnings demonstrated that Dish did better than its prime rival DirecTV (NASDAQ:DTV) and much better than the cable providers Comcast (NASDAQ:CMCSA) and Time Warner Cable (NYSE:TWC).

Our price estimate for Dish Network stands at $34.31. We believe that although the margins appear under pressure, Dish's stock can still grow if it can continue with its fantastic subscriber turnaround witnessed in Q1.

Subscriber Trend Improvement: From Possibility To Reality

When Dish Network acquired Blockbuster, its strategy was to better hedge its business and improve its overall service to gain, or at least sustain, pay-TV subscribers. The results from the last two quarters show that the Blockbuster acquisition has led to a significant turnaround in subscriber trends for the company. Dish turned back to positive subscriber gains in Q4 2011, although the magnitude was low and built on that improvement to beat its rival DirecTV in net subscriber additions in Q1 2012.

Things certainly seem better for Dish Network and it seems that the appeal of streaming service cannot be ignored at all. What Netflix (NASDAQ:NFLX) has demonstrated as a successful and high growth business is being adopted by pay-TV providers to boost their own growth. Dish Network has been the earliest entrant among its competitors in the streaming business, and that is paying off.

Although, going forward, the market is going to get saturated and more competitive, this early move will help Dish build a quality subscriber base to leverage later on to further push its HD/DVR and streaming services.

Cost Increments Priced In

One might argue that although Dish is doing well in terms of subscriber additions, the margins are under pressure due to rising programming costs. However, this is an industry-wide trend and is not, in particular, a disadvantage to just Dish Network. To some extent, the rising programming costs can be mitigated by periodic price increases.

Dish has frozen the pricing for now as it attempts to increase the quality and quantity of its customer base. However, in the future, the company will inevitably have to raise prices, in-line with the industry move. We have already priced in the margin declines in our current price estimate of $34. 31.

Risks – Failure With Wireless Broadband, Programming Costs Increase More Than Expected

Although things have started to look better for Dish, its value could diminish if it fails in its wireless broadband plans. This could impact the company's long-term sustainability as it needs to enter the broadband business to diversify risk and compete better.

Furthermore, there is a risk from higher programming costs than we currently anticipate. Given that Dish Network has traditionally been a lower-priced pay-TV service, its subscriber base has been more sensitive to pricing changes. Therefore, price increases to offset programming costs may not be a sustainable strategy. Nevertheless, to mitigate this risk, the company is mainly focusing on adding high quality subscribers who are willing to shell out more money.

Disclosure: No positions

Source: Dish Network Beams To $34 As Subscriber Trends Show Improvement