Dishing on EchoStar

Analyst takes stock of sat operator

Shares of EchoStar Communications, up 9% so far this year, will rise another 16% within the year to $48 if Wedbush Morgan Securities analyst William Kidd is correct. But that's not good enough for him to change his "hold" rating on the stock.

He did, however, boost his Dish Network subscriber forecast and other metrics, based on indications that the cable triple threat of television, high-speed Internet and telephone services isn't hurting satellite TV as much as he thought it would.

Considering "that most cable entities have already launched triple-play services throughout the nation, the potential for further incremental losses have greatly lessened," the analyst said.

Kidd now estimates 968,000 gross adds for Dish in the third quarter, up from the 948,000 he previously forecast. Net adds was upped to 264,000 from 245,000 previously.

ARPU, or average revenue per user, should come in at $66.70 in the third quarter, or 40 cents better than Kidd had forecast earlier. That bump is due to more customers taking high-definition and DVR services.

Other bullishness from Kidd's research note includes free cash flow that will rise from $1 per share this year to $2.50 per share next year.

The analyst said that the free-cash-flow improvement "highlights the defensive nature of pay television stocks in a potentially worsening consumer climate, since subscriber bases and monthly bills are likely to still increase in such an environment."

On the bear side, the analyst notes that Dish is about to lose its HD lead over DirecTV. Dish now offers 39 HD channels (70 if you include pay per view, regional sports and local channels) and DirecTV just 10. But the latter is about to launch 60-70 additional national HD channels. And some expect DirecTV to boast 100 HD channels by year's end.

After surveying the HD landscape and the coming changes, though, Kidd concludes: "We believe that the consumer response to both companies' improved HD offerings will not be overwhelming."

EchoStar shares closed down 1.2% to $41.55 on Thursday, giving it a $27.6 billion market capitalization. DirecTV shares were up fractionally to $24.45, making it a $29.1 billion company.
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