Earning Scorecard: DISH Network

DISH Network Corp. ( DISH - Analyst Report ) declared solid financial results for the fourth quarter of 2011. Most importantly, the company witnessed net subscriber addition in the previous quarter, reversing the trend of the prior two successive quarters. In the fourth quarter of 2011, DISH Network gained 22,000 net subscribers compared with an enormous loss of 156,000 subscribers in the year-ago quarter.

Fourth Quarter Highlights

Quarterly GAAP net income was $312.7 million or 70 cents per share compared with $251.8 million or 56 cents per share in the year-ago quarter. Fourth-quarter 2011 EPS of 70 cents was miles ahead of the Zacks Consensus Estimate of 61 cents.

Quarterly total revenue increased 13% to $3,631.5 million from $3,206.6 million in the year-ago quarter. This was mainly due to an increase in subscriber related revenue and contribution from Blockbuster. The fourth-quarter 2011 revenue also surpassed the Zacks Consensus Estimate of $3,622 million.

Average monthly subscriber churn rate in 2011 was 1.63% compared with 1.76% in 2010. Average revenue per user in 2011 was $76.93 compared with $73.32 in 2010. Average subscriber acquisition cost in 2011 was $771 compared with $776 in 2010.

Agreements of Analysts

Of the 11 analysts covering the stock in the last 7 days, six analysts revised the EPS estimates upward for the first quarter of 2012 while only one reduced the same. Likewise, for the second quarter of fiscal 2012, five analysts raised the estimates but two analysts reduced the same.

For fiscal 2012, out of the 14 analysts, six analysts increased the EPS estimate while three decreased. Similarly, for 2013, out of the 14 analysts, five analysts moved the estimates upward but two moved in the opposite direction.

We believe that majority of the analysts remain optimistic on DISH Network’s earning potentials in the forthcoming quarters mainly attributable to better promotional efforts initiated by the company in order to gain more subscribers.

Currently, the Zacks Consensus EPS Estimate for the first quarter of 2012 is pegged at 70 cents per share, reflecting an annualized decrease of 3.16%. Similarly, for the second quarter of fiscal 2012, the current Zacks Consensus EPS Estimate of 75 cents per share reflects a year-over-year growth of 0.24%.

Magnitude of Estimate Revisions

In synergy with the upward revision of estimates, the current Zacks Consensus Estimate for the first quarter of 2012 was just a penny above the previous estimates of 69 cents. Likewise, for the second quarter of 2012, the current Zacks Consensus Estimate increased by 2 cents from the earlier estimate of 73 cents.

For fiscal 2012, the current Zacks Consensus Estimate remained flat with the previous estimate of $2.72. However, for fiscal 2013, the current Zacks Consensus Estimate was 11 cents above the prior estimate of $2.83.

Earning Surprises

With respect to earnings surprises, the company notched up an average earnings surprise of 4.16% in the trailing four quarters. In the recent quarter, DISH Network surpassed the Zacks Consensus Estimate by 9 cents or 14.75%.

The ongoing quarter reflects a downside risk of 1.43% while the next quarter reflects an upside potential of 2.67% (essentially a proxy for future earnings surprises). Likewise, for fiscal 2012, the downside potential is 1.10% but fiscal 2013 reflect a growth potential 0.68%.

Our Recommendation

Availability of higher unutilized spectrum assets and better improvement in churn rate will act as growth catalysts for DISH Network going forward. Moreover, the acquisition of movie chain and video game retailer Blockbuster Inc. coupled with subscriber losses at Netflix Inc. ( NFLX - Analyst Report ) , which offers cheaper online videos and also happens to be the close rival of DISH Network will drive subscriber growth in the near terms.

However, stiff competition and higher programming content costs will act as headwinds for the stock going forward.

We 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

As a PhD from MIT, Len Zacks 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/