Dish Network (DISH) is undervalued right now for where it is headed. The company is priced a little higher than its competitors relative to its earnings but there is good reason to think Dish's share price will start to swell - and soon.
The company is pushing into wireless as a way to start to offer bundled services and compete more effectively with larger rivals.
Looking At The Numbers
Dish is currently trading at around $62 per share with some analysts saying that the stock could reach $100 per share in the next year. The company is trading high relative to its rivals - it has a price to earnings ratio of 37.41 versus Comcast's (NASDAQ:CMCSA) 19.56 and DirecTV's (DTV) 16.97. But, a high price to earnings ratio is not unusual for companies expecting high growth and wireless service is a great opportunity for Dish.
While Dish's earnings per share is low - the company shows an EPS of just $1.66 versus Comcast's $2.73 and DirecTV's $5.08 - it is also financially secure. Dish has a current ratio of 2.72 suggesting low levels of debt and efficient management - Comcast's current ratio is at 0.74 and DirecTV's is 0.87. Dish is cash strong as well. The company has almost $9 billion in cash on its balance sheet and $2.23 billion in operating cash flow.
If Dish employs that cash strategically, the stock could easily reach $100 - if not higher. And, there is good reason to think it will.
Dish Goes Wireless
Dish is going wireless. The company has been making a push towards buying wireless spectrum, spending over $5 billion since 2007 on a total 56 megahertz (MHz), and time is running out.
In 2012, the FCC ruled that Dish must employ enough spectrum to cover 40% of the population in the area in which the company holds spectrum or face penalties. Moreover, the FCC requires Dish cover at least 70% of that population within the next 7 years. Dish had tried to purchase Sprint (NYSE:S) last year. The move would have satisfied the FCC requirement and placed Dish as the third largest wireless provider in the country. Dish ultimately lost out to Japan's Softbank, but it didn't stop there. In June, Dish partnered with nTelos Wireless (NASDAQ:NTLS) to launch a wireless service in Virginia as part of a pilot program. In July, that service was expanded to cover several counties in the area.
Dish going wireless serves several purposes, the first of which is bundling. Introducing wireless service would allow Dish to provide its customers the ability to get their voice, video, and Internet services from one provider. "The idea is to provide viewers with a consistent experience - whether they're inside their homes using a satellite dish or outside using wireless networks," explains Bloomberg. "Although Verizon Wireless (NYSE:VZ) and AT&T (NYSE:T) already offer a bundle of services, neither has as many TV customers as Dish. Also, they provide TV and broadband in select local markets, while Dish operates nationally."
Access To Rural Markets
In addition, a wireless network would allow Dish to offer wireless Internet in subscriber homes, including a video service that would allow the company to beam live television to subscriber phones. The streaming television service could be delivered via cellphone tower to a roof antenna, avoiding mobile data caps. Dish Network CEO Charles Ergen believes that as many as one-third of people in the United States "will find it more efficient to get their home Internet over a wireless connection than through a wired one because they don't have access to a superfast fiber-optic link."
"Mobile video is expensive now given the high price of data packages bought by consumers and the need for operators to build out their networks to handle the traffic," writes the Wall Street Journal. "In the future, Mr. Ergen said, such live video could be transmitted far more efficiently over a special band of the airwaves that Dish controls."
Mobile video would also provide Dish with an added competitive advantage - information. A system such as Ergen envisions would provide "the potential to target advertisements to people based on a unified understanding of the shows they watch at home, what they do on their phone, and where they go when they leave the house."
That wealth of data could be parlayed in a number of ways, and there is big money in both selling that data and selling ad space. "Global mobile advertising spending is forecast to reach $18.0 billion in 2014, up from the estimated $13.1 billion in 2013," according to Gartner. "The market is expected to grow to $41.9 billion by 2017." In its report, Gartner explains that massive growth is heavily influenced by "provider consolidation," location data provided by monitoring users, and local advertisers becoming more interested in pushing mobile ads.
Dish has to push forward in its efforts in order to comply with the FCC, and that deadline is coming soon - but there could be a silver lining.
Acquiring Sprint would have immediately catapulted Dish to where it needs to be. Last year's deal fell through but Sprint could still be vulnerable to acquisition.
Sprint has been trying for the past six months to acquire T-Mobile (NASDAQ:TMUS). The move is meant to draw together the third and fourth largest wireless providers in the country so that they can better compete against Verizon and AT&T.
But, that deal looks like it may be dead in the water. French telecom Iliad made a $15 billion offer for a majority share in T-Mobile last week. If Iliad's offer goes through, Sprint will be looking for other ways to boost its ability to compete against larger players in the wireless game, and that could be easier said than done. Sprint is losing subscribers by hundreds of thousands each quarter and its bottom line is suffering. If Softbank gets fed up, Dish could be left with a second chance to acquire the company.
Dish is a long position with short-term gain. If its wireless gamble is successful, the company could easily reach $100 per share. With playing to rural markets, introducing bundling, and extra revenues from targeted advertisements stable, long-term growth is sure to follow once Dish establishes itself in the wireless services market.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.