Hedge fund Kerrisdale Capital released its much-anticipated report on Dish Network Wednesday, claiming that in the best case the satellite TV company’s wireless spectrum is worth about a third of the value Wall Street has placed on it, and adding that the stock should be trading at less than half its current price.
Kerrisdale has made a living out of short selling stocks, and its Dish positon is no different. The fund raised eyebrows earlier this month when it tweeted that it planned to short Dish stock, a move that caused Dish shares to lose about 13% of their value over several days.
This time the market seemed prepared. Although Dish dipped as low as $46.68 per share in early trading Wednesday (down 1.8%), it has since gained ground, priced at $47.60 each (up 0.13%) by early afternoon.
In its report, Kerrisdale said that Dish’s spectrum, which the market values at about $18.5 billion, is worth $5.65 billion in its base case scenario and just $118 million in the worst-case. Kerrisdale’s argument is that spectrum is not as scarce as Wall Street believes and carriers have other ways to expand capacity, namely by building more cell sites.
With a spectrum value that low, and a rapidly declining satellite TV business, Kerrisdale estimates that Dish stock is worth about $20 per share (vs. the $48 per share target of most analysts) in the best case, and just $8 in the worst-case.
In the report, Kerrisdale acknowledges that such dramatically lower price targets could be difficult to take. But it said that Dish has been trading on borrowed time for too long.
“Dish’s swagger alone has convinced many that, no matter how much it seems like there’s no real plan, everything will somehow work out anyway,” Kerrisdale said in the report. “But, considered dispassionately, Dish’s current strategic direction was always a dangerous longshot: levering up a slowly decaying business to double and triple down on an illiquid, highly specialized, highly regulated, limited-life, non-cash-flowing asset with only two to three plausible buyers. Dish has outlived many skeptics over the years, but, in investing as in gambling, there’s such a thing as pressing your luck.”
Dish hasn’t changed its position either, issuing an identical statement to the one it released when the Kerrisdale report was a mere rumor. Although the company is in a quiet period around its planned participation in the upcoming broadcast incentive spectrum auction, the company said it would continue running its business as always.
"We understand Kerrisdale is shopping a negative report on Dish and may be shorting our stock in an attempt to make a short-term gain while we are in an FCC-mandated quiet period,” Dish said in the statement. “We will continue to manage the business for the long-term benefit of our shareholders as we have done over the last 35 years.”