EchoStar (SATS, Financial) initially surged today after the FCC approved the company's 5G network buildout framework late Friday. However, gains quickly faded after the market opened.
While pay-TV remains SATS's primary business, comprising two-thirds of Q2 revenue, the company has heavily invested in wireless. This move aims to fill the gap left by Sprint after its 2020 acquisition by T-Mobile (TMUS, Financial). SATS's wireless arm, Boost Mobile, uses Dish Wireless towers along with those from AT&T (T, Financial) and TMUS. Dish Network, which owns Dish Wireless and falls under the SATS umbrella, has invested tens of billions in building towers and buying spectrum licenses. Consequently, Dish Network's financials, now SATS's financials post-merger, have deteriorated over the years, making setbacks more impactful.
Good news, however, can trigger buying support. SATS shares are up roughly +80% from August lows. The stock initially gained momentum from a report earlier this month that Dish Network was in talks to settle a lawsuit with creditors over asset transfers. Further gains came after reports last week that AT&T was discussing a merger between DirecTV and Dish Network.
- The FCC's approval of SATS's buildout framework is significant. One major hurdle for Dish Network before merging with SATS was expanding coverage from 70% to 75% of the U.S. population. This 5% jump required new infrastructure for rural areas. With FCC approval, SATS now expects to cover 80% of the U.S. population by year-end, adding 30 million households.
- Higher coverage relies partly on AT&T and TMUS. In areas where SATS hasn't deployed 5G, users will access its partners' networks, improving efficiency by reducing redundant infrastructure.
- Why are shares sluggish today? Investors have already priced in much good news recently, dampening Friday's announcement. Additionally, SATS still operates on shaky ground. As of Q2, it had over $24 billion in net debt, and sales are declining year-over-year due to cord-cutting trends, which pressure net income.
Sentiment around SATS has shifted from bleak to energetic within three weeks due to a series of positive stories. While investors initially reacted positively to the FCC announcement, a rapid run-up and a concerning balance sheet stunted today's gains. There's significant uncertainty around SATS, leading to potential big price swings. Thus, SATS should be approached cautiously, especially after its recent rally.
