The satellite industry is heading towards consolidation, but one of the companies that should be a part of its future is EchoStar Corporation (NASDAQ: SATS), a technology leader that has been falling in price with its sector the past two days.
The company stands out for offering broadband services profitably, while other satellite operators have struggled to do so. EchoStar also has more than $33 billion in cash to make acquisitions that would position the company for further growth under the leadership of its Chairman Charlie Ergen, a self-made billionaire.
With just $389 million in net debt at the end of 2017, EchoStar is rated an “outperform” technology stock by Raymond James & Associates, which recently raised its price target on the stock by $1 to $74. The company’s key assets are its Hughes Network Systems broadband unit, its EchoStar Satellite Services video distribution business, its stake in pay-television venture DISH Mexico and newly deployed satellites that include the recently launched EchoStar 21.
I covered the satellite and space industries as a beat earlier in my career, interviewed Charlie Ergen several times and spoke to him conversationally when he was much more accessible than he is now as chairman of EchoStar and chairman and CEO of satellite TV operator DISH Network (NASDAQ: DISH). Years ago, Ergen told me the only business in which he ever lost money was in providing broadband, and that he was determined to make money in it one day.
Ergen has done so through EchoStar, which acquired satellite broadband provider Hughes and its debt for about $2 billion in 2011. The transaction gave EchoStar a technological advantage in pursuing both consumer and business broadband customers. Those pursuits have proven to be profitable.
I spoke with Hughes Network Systems Executive Vice President Mike Cook at the Satellite 2018 conference in Washington, D.C., last week, and he told me Ergen is “making money with us,” attends board meetings and engages actively in strategic decisions.
Ergen, who enjoys playing poker with his pals for recreation, keeps growing his empire, despite long odds and bigger and better funded rivals. Investors looking to find a winner among the satellite and space businesses available for investment could do much worse than to bet on Ergen. After DISH Network Corp. lost a bidding battle to Tokyo-based Softbank Corp. for the purchase of Sprint Nextel Corp. in 2013, Ergen started looking for his next opportunities and hasn’t stopped yet. Nor should investors expect him to do so.
For a man who once told me he was shy, Ergen ends up in the spotlight more than might be expected. He is taking EchoStar beyond the U.S. borders and offering satellite broadband services in Brazil and Colombia. Plans also are underway to launch services in Peru, Chile and a few other places, Cook told me.
“We are building the capacity to be able to connect the vast majority of the unserved and underserved population throughout the Americas,” Cook said.
The Hughes business unit also is providing its very small aperture (VSAT) equipment to customers in Asia.
Investors worried about the March 19 sell-off in the market and the hit taken by technology companies should avoid overreacting due to high-profile controversy involving Facebook (NASDAQ: FB), which reportedly provided personnel data from 50 million of the social media website’s users to Cambridge Analytica. The market rose the following day, even though technology stocks in general pulled back a bit further.
The Federal Trade Commission is expected to investigate whether Facebook violated a 2011 consent decree with the U.S. government. U.K. officials also are investigating Facebook, so that company’s shares could fall further in the days and weeks ahead, depending on the ultimate findings.
Meanwhile, technology stocks other than Facebook still offer value for investors who believed the sector looked promising before the events of this week. Bryan Perry, who writes the Hi-Tech Trader advisory service, said he regards the past week as the “storm before the calm.” Once the Federal Open Market Committee releases its latest statement on March 21 and likely takes a measured position on whether it will raise interest rates more than three times this year, the markets should “rally strongly” in the upcoming first-quarter earnings season, he wrote today in his Cash Machine hotline.
With EchoStar closing today at $56.40, down 1.16 percent, it is well below the $74 a share price target set by Raymond James. For investors seeking value after the technology sector’s pullback in recent days, EchoStar could be a stock worth watching for possible investment.
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