Despite Wednesday’s nearly 27-point decline on the Nasdaq, shares of DISH Network Corp. (DISH) rose sharply in heavy trading.
DISH Network rose more than 10.04%, or $6.81, to close the day at $74.66 with more than 14.5 million shares trading hands.
Shares of DISH Network have risen more than 45.6% in the previous 12 months, and currently trades near the stock’s 52-week high.
Now, given the relatively flat quarterly financial performance of DISH, investors are left wondering if the stock can move higher from these levels.
Poor Quarterly Results
In the latest quarterly release ending September 30, 2014, DISH Network booked revenue of $3.67 billion. This represents a 4.9% increase over the $3.50 billion announced in the same quarter a year ago.
Unfortunately, the reported revenue growth remains 72.4% behind the industry average of 11.6%.
And despite the revenue increase, it appears that the additional revenue had no impact on DISH’s bottom line.
DISH also experienced a sizable decline in earnings per share in its most recent quarter compared to the same quarter a year ago. In its release, the company announced that EPS declined 32.6%, falling from $0.46 per share to $0.31 per share.
But wait, there’s more bad news…
DISH Network will likely see another decline in earnings in 2015, as expectations are for an earnings contraction of 14.5%, falling from $1.86 in 2014 to $1.59 in 2015.
Making matters worse, operating income for the company fell last quarter, too.
DISH reported a decrease of 7.6%, with operating income falling from $420 million in Q3 2013 to $388 million in this latest quarter.
Furthering the gloom, net income for the most recent quarter was $145.5 million versus $314.9 million last year, a difference of 53.7%!
So this all begs the question…
Why is DISH Network stock rising?
Simple… It’s happening because of reasons other than its financial performance…
You see, the FCC began an auction of wireless spectrum last Thursday, and DISH looks to be a big winner based on results so far.
Bids in the FCC spectrum auction rose by $7.5 billion on Tuesday with large markets now priced above $2.50/MHz/POP.
How does this impact DISH?
DISH Network sits on a lot of spectrum that’s much more valuable than the AWS-3 spectrum now being priced.
This means that at today’s closing price of $74.66, DISH stock is currently priced at about $1/MHz/POP if we use a 6x EBITDA as a gauge.
Thus, if the prevailing value of spectrum remains above $2/MHz/POP, the stock is trading at a serious discount to its real value.
Possible DISH Merger?
But the price differential in the spectrum isn’t the only positive effect on the stock…
You see, the AWS-3 auction could pave the way for a merger between DISH Network and the nation’s fourth-largest telecom operator, T-Mobile US, Inc. (TMUS).
Back in September, Bloomberg reported that DISH was in talks with Deutsche Telekom, the parent company of T-Mobile, about a possible merger. Upon completion of the auction, both parties may seriously pursue the deal.
And a combined company will boast a significant bandwidth portfolio on all AWS-1, 3, 4, as well as H-band spectrums.
The combined company’s bandwidth would dwarf competitors Verizon Communications (VZ), AT&T (T), and Sprint (S), while allowing deployment of high-quality LTE services with extremely fast video delivery and enhanced application download and upload speeds.
Such a merger would make a combined company the preeminent global telecom provider – and would certainly push DISH significantly higher than the $105 estimate based on current trends.
It’s certainly something to think about…