Dish Network Corp (Nasdaq: DISH) saw its shares decline by $0.73 or 1.96% to close at $36.44 following a rating downgrade by Mike McCormack, an analyst at Guggenheim Securities. Furthermore, the equity research firm also withdrew Dish from its list of “best ideas.”
Guggenheim clarified that it had anticipated an increase in the market value of the company through a sale of spectrum or collaboration with a financially strong firm. However, the investment banking firm currently believes that the likelihood of such an occurrence is unlikely.
In April 2018, T-Mobile and Sprint announced a $26.50 million merger deal to rival their competitors Verizon and AT&T. However, two earlier merger attempts – in 2014 and 2017 – had failed as the Department of Justice was concerned that a merger will leave only three players in the market, making the wireless business anti-competitive.
To ward off concerns, two years ago, T-Mobile’s holding company Deutsche Telekom agreed to liquidate a significant portion of Sprint assets. Dish entered the scene by inking a deal to acquire Sprint assets and create a new countrywide wireless carrier. The deal was completed on April 3rd, 2020.
Under the deal, Dish gained access to “at least 20,000 cell sites” and also “hundreds of retail locations.” In return, Dish paid $5 billion for the assets, $3.6 billion for the 800MHz spectrum, and $1.4 billion for the Boost mobile business.
The 800MHz spectrum cannot facilitate high speeds but allows a big range. At that frequency, signals can even pierce through walls. Dish already owns a license for 600MHz and 700MHz bands that guarantees high-speed signal transmission, but not the range.
The company has already invested $26 billion in the past 12 years in assets related to the wireless business. With the acquisition of Boost mobile, the company became a mobile virtual network operator (MVNO). The company’s intention is to create a countrywide 5G network.
It has an experienced team to set up the infrastructure. However, it is not easy to accomplish the goal of creating a countrywide 5G network with cash reserves of $10 billion. Dish co-founder and Chairman Charlie Ergen is confident of getting things done. But sector analysts are skeptical.
In a note to clients, McCormack said, “While we had hoped asset value would have been realized through either a sale of spectrum, or a partnership with a deep-pocketed tech firm, those scenarios are seemingly becoming much less likely.”
Guggenheim stated that it could not back the Englewood, Colorado-based Dish’s plan to compete with other players in the wireless sector. According to the analyst, Dish, which has a subscriber count of less than 10 million, may have to shell out a huge amount to battle its competitors. Furthermore, the contest will be a prolonged one.
The analyst wrote: “In our view, attacking a wireless industry with deeply entrenched competitors with a starting point of less than 10 million prepaid subscribers and a lengthy and costly build ahead isn’t a strategy we can endorse. While something may still materialize, we see the build out process unfolding and do not see an upside to shares as an operating company.”
Based on the above facts, Guggenheim believes that it does not anticipate an “upside to shares as an operating company.” Furthermore, McCormack downgraded Dish Network to “Neutral” from “Buy” and withdrew the price target of $53.
The rating downgrade is expected to keep the stock range-bound with a slight bearish bias.
Technically, the stock is facing resistance at 36 levels. The next support is anticipated only near 30. Additionally, the stochastic oscillator is also near the overbought region. Therefore, we are anticipating the stock to decline in the days ahead.
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