Analyst Downgrades Dish Network Shares After $320 Million Blockbuster Bid

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Ahead of a court hearing on the proposed acquisition, Wunderlich's Matthew Harrigan calls the deal for the video rental firm "a questionable trade."

NEW YORK - Wunderlich Securities analyst Matthew Harrigan on Thursday downgraded shares of Dish Network to a rare "sell," citing concerns about subscriber momentum and recent acquisition moves, including the proposed purchase of video rental firm Blockbuster.

His stock call came ahead of a bankruptcy judge's 10am ET approval hearing here today for the Blockbuster deal.

Harrigan has a price target of $21 on satellite TV provider Dish, whose stock had closed at $24.32 on Wednesday. His previous rating on the stock was a neutral "hold."

"The Street is affording Dish a free pass in assigning nominal transaction valuations" to a recent $1.4 billion acquisition deal for a broadband provider and the proposed Blockbuster acquisition," said Harrigan in a report entitled "A Dog's Breakfast of M&A Activity."

Calling the $320 million Blockbuster play "a questionable trade," he said reviving the video rental store business will be a drag on Dish's financials.

"With an 8.6% same store sales decline in the third quarter of 2010, we are skeptical that the microeconomics of the more viable stores can be revamped simply by crossing-selling Dish Network or cloning Netflix's strategy," he said.

Harrigan also cited risk to 2011 subscriber momentum. "Dish is likely vulnerable to any negative tipping point in the economy that affects the lower end consumer," which it tends to attract, he said.