Making strides

EchoStar outpaces analyst expectations

Apparently, a few analysts on Wall Street didn't have much respect for EchoStar Communications. When it reported quarterly earnings last week, the consensus was not only that it beat estimates, but that it beat them by a wide margin.

EchoStar added 350,000 net new subscribers to its Dish Network, a whole lot more than analysts expected, given their constant drumbeat about the virtues of cable TV over satellite TV, with the former's tripleplay and VOD offerings.

Prudential Equity Group's Katherine Styponias expected just 274,000 new subs. Goldman Sachs analyst Anthony Noto expected 300,000 and Merrill Lynch analyst Jessica Reif Cohen estimated 265,000.

None of the three was recommending that investors buy EchoStar shares, though, and last week's impressive earnings report didn't change their minds, in part because the stock is already up more than 30% in the past six months.

Much of that gain, observers say, is due to takeover speculation. Styponias, for example, guesses the company could be purchased by DirecTV Group or a telephone company for roughly $44 a share. But that's not much of a premium to $42.27, the price at which the stock closed Monday.

"Merger and acquisition speculation provides a floor for shares," Noto said.

All those more-than-expected new subscribers resulted in earnings and revenue that exceeded analysts' estimates as well. The company reported fourth-quarter profits of $152.6 million, up 15% from a year earlier, on revenue of $2.58 billion, up 17%.

Reif Cohen said she suspects that the strong subscriber statistics "were driven by increased advertising and promotions tailored toward subscribers taking multiple receivers or advanced products, such as DVRs and HD television.

The company also reported its lowest churn rate in seven quarters and subscriber acquisition costs that fell from $730 a year ago to $678.

All the positive metrics, though, weren't enough to alter the analysts' neutral posture on the stock. Reif Cohen probably summed up the consensus analysis best:

"The company's reliance on a single product — video — to drive growth is likely to be increasingly constrained by the rapidly changing multichannel competitive landscape led by cable's triple play and by telco video long term."
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