Earning Scorecard: DISH Network

DISH Network Corp. (DISH - Analyst Report) reported its third-quarter 2011 financial results, where the top line exceeded the Zacks Consensus Estimate, but the bottom line fell short of the Zacks Consensus Estimate.

However, the alarming sign is that net subscriber loss mounted in the previous quarter to 111,000 compared with a net loss of a mere 29,000 in the prior-year quarter. As of September 30, 2011, DISH Network had approximately 13.945 million subscribers.

Fourth Quarter Highlights

Quarterly GAAP net income came in at $447.7 million or 71 cents per share compared with a net income of $446.3 million or 55 cents per share in the prior-year quarter. The third quarter of 2011 EPS of 71 cents missed the Zacks Consensus Estimate by a penny.

Quarterly total revenue increased 12.3% to $3,602.7 million from $3,207.7 million in the year-ago quarter. This was mainly due to an increase in subscriber related revenue and contribution from Blockbuster. The third-quarter 2011 revenue also surpassed the Zacks Consensus Estimate of $3,582 million.

Agreements of Analysts

Of the 13 analysts covering the stock in the last 7 days, none revised their estimates for the fourth quarter of 2011. Likewise, for the first quarter of fiscal 2012, none out of the six analysts changed the EPS estimation.

For fiscal 2011, out of the 10 analysts, none increased or decreased their estimates. Similarly, for 2012, out of the 14 analysts, none revised their estimates.

We believe that such cautious outlook followed by the analysts is mainly due to huge loss of subscribers coupled with the lack of proper promotional efforts initiated by DISH Network. However, recent loss of Netflix Inc. (NFLX - Analyst Report) customers coupled with aggressive marketing strategies undertaken by the company to distribute free Blockbuster Movie Pass may attract new customers going forward.

Currently, the Zacks Consensus EPS Estimate for the fourth quarter of 2011 is pegged at 61 cents per share. The projected annual growth rate is 9.62%. Similarly, for the first quarter of fiscal 2012, the current Zacks Consensus EPS Estimate of 71 cents per share reflects a year-over-year decline of 1.85%.

Magnitude of Estimate Revisions

For the fourth quarter of 2011 and first quarter of 2012, during the last 7 days, the current Zacks Consensus Estimate remained unchanged at 61 and 71 cents, respectively. Likewise, for fiscal 2011 and 2012, the current Zacks Consensus Estimate remained unchanged at $3.30 to $2.71, respectively, in the last 7 days.

Earning Surprises

With respect to earnings surprises, the company notched up an average earnings surprise of 1.89% in the trailing four quarters.  However, in the recent quarter, DISH Network missed the Zacks Consensus Estimate by a penny or 1.39%.

The ongoing quarter remains at breakeven (essentially a proxy for future earnings surprises) 1.32%, however, the first quarter of 2012 reflects a downside potential of 1.41%. Likewise, for fiscal 2011 and fiscal 2012, the Zacks Consensus Estimates upside potentials came in at 0.00% and 0.74%, respectively.

Our Recommendation

Availability of higher unutilized spectrum assets and higher marketing expenditure will act as catalyst for DISH Network going forward.  Moreover, the company is upgrading their service quality by acquiring movie chain and video game retailer Blockbuster Inc. This is expected to reduce the company’s churn rate going forward.

However, continuous loss of subscribers, stiff competition, higher programming content costs and higher churn rate will act as headwinds for the stock going forward.

We thus maintain our long-term Neutral recommendation for DISH Network. Currently, DISH Network has a Zacks #3 Rank, implying a short-term Hold rating on the stock.

About Earnings Estimate Scorecard

Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at: http://www.zacks.com/education/

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