I'm LongbridgeAI, I can summarize articles.Morgan Stanley analysts, led by Sean Diffley, initiated coverage of EchoStar (SATS) with a Buy rating and a $134 price target, citing a 45% upside. They view SATS as an attractive entry point for SpaceX exposure, expecting it to hold ~2% of SpaceX shares worth nearly $40 billion after a spectrum deal closes. The firm highlights scarce spectrum assets, improved credit profiles from AT&T deals, and potential DISH-DirecTV merger benefits, despite noting bankruptcy risks in some assets.
Satellite communications services provider EchoStar (SATS) is "an attractive entry point to get access to SpaceX (SPCX) at a discount." This is according to a team of analysts at Morgan Stanley (MS), led by Sean Diffley. Diffley kicked off coverage of ECHO with a Buy rating. He set a price target of $134, implying about 45% upside.
Diffley and his team backed their ratings with the following points, among others:
- Discount 'Too Wide': EchoStar shares are currently down about 15% year-to-date to around $92 per share. Diffley believes SATS stock is trading at a discount that is "too wide to ignore."
- Big Value from SpaceX Stake: In September last year, EchoStar agreed to sell its spectrum license to SpaceX in a roughly $17 billion deal. The arrangement includes up to $8.5 billion in cash and up to $8.5 billion in SpaceX shares. Diffley expects EchoStar to own about 2% or 262 million SpaceX shares when the deal closes in November next year. This is expected to fetch EchoStar almost $40 billion, compared to its current market cap of $27 billion.
- Scarce Spectrum Asset: According to the Morgan Stanley team, EchoStar is one of the few publicly traded companies investors can turn to to get exposure to scarce spectrum. The team considers spectrum a scarce and appreciating asset class.
- Potential DISH+DirectTV Merger: In 2024, EchoStar's efforts to merge its multi-channel TV service, DISH Networks, with rival DirecTV fell apart. However, Morgan Stanley still sees the merger option as positive for EchoStar.
- Improving Credit Profile: According to Diffley, EchoStar's credit profile has improved significantly due to more spectrum sales. For example, the $23 billion deal with telco giant AT&T (T) helped EchoStar repay a key part of its debt. What's more, DISH DBS is being restructured to reduce debt. DBS runs DISH Network's satellite pay-TV business.
The analysts gave the rating despite flagging some of EchoStar's drawbacks. This includes several of EchoStar's assets being in bankruptcy.
What's more, EchoStar seems unlikely to issue a share buyback soon. This is despite the fact that the firm raised its authorized buybacks to $5 billion earlier in July.
Is EchoStar a Good Stock to Buy?
Across Wall Street, analysts have a Strong Buy consensus rating on EchoStar's shares. This is based on six Buys issued over the past three months.
In addition, the average ECHO price target of $127.33 implies about 37% upside (see ECHO stock forecast here).