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Dish Network Corp.’s plans to make a splash in the U.S. wireless market are now more challenging amid the COVID-19 crisis, MoffettNathanson’s Craig Moffett cautioned Tuesday.
As part of T-Mobile US Inc.’s TMUS, +4.00% merger with Sprint US:S, the companies agreed to sell Dish prepaid wireless brands and some spectrum to appease regulatory concerns about market consolidation. Now that the T-Mobile/Sprint deal has closed, the plan is for Dish DISH, +1.40% to forge ahead as a wireless player, initially leveraging T-Mobile’s network while it works to build its own infrastructure. Dish’s acquisition of Sprint’s Boost Mobile and Virgin Mobile prepaid brands should close shortly.
Moffett said Tuesday that Dish’s foray into wireless was a “challenging” proposition to begin with, but that now it’s even harder as the coronavirus outbreak has pressured prepaid wireless customers and threatened to further strain Dish’s finances.
“Even in the best of times, the pre-paid business is a high-churn business,” Moffett wrote. “But with a customer base that skews urban, with lower credit, and with lower income, the current crisis seems almost certain to cause churn to spike higher as unemployment rises.”
That’s to say nothing of the company’s existing satellite business. Moffett expects that with “soaring unemployment” and little in the way of sports programming, some anxious Dish satellite customers may abandon their subscriptions. He doubts the company will have much luck cross-selling satellite and prepaid wireless plans since many satellite subscribers live in rural areas, while prepaid wireless subscribers are typically in urban areas.
Moffett also worries about the company’s debt levels, writing that it was “preposterously levered” at 4.4 times trailing earnings before interest, taxes, depreciation and amortization as of the end of 2019. He said the company’s leverage ratio will increase further when the deal for the prepaid brands formally closes “and all that’s before spending a penny on building a wireless network.”
He cut his price target to $15 from $30 while maintaining a sell rating on the stock. Dish shares were up about 2% in Tuesday’s session, though they’ve declined 37% so far this year as the S&P SPX, +3.05% as lost 12%.
