Wall Street Analysis

By Paul Dykewicz, PBI Media LLC

EchoStar Communications [DISH] exhibited resiliency last week when its stock price stayed up despite announcing that the Securities and Exchange Commission (SEC) found accounting problems at the company that likely would require a restatement of its 2001 financial results.

Wall Street analysts voiced little concern about the accounting issues, and they generally reacted favorably to news that EchoStar had settled its programming dispute with Viacom [VIA]. That conflict left an estimated 1.6 million EchoStar subscribers in 16 U.S. markets without their CBS signals for two days. Also lost for two days nationwide to all 9.5 million EchoStar subscribers were 10 Viacom cable channels.

Investors seemed unfazed about the mixed news from EchoStar by bidding up its stock price Thursday when the accounting problems were disclosed. The stock closed at $35.35, up $1.23 a share from the closing price Wednesday. Even more significant is that it occurred on a day when almost all the markets fell. EchoStar’s stock only slipped slightly in price at presstime, to $35.27, down .23 percent from Thursday’s close.

Tom Eagan, a satellite and cable analyst at Oppenheimer, issued a research note late Thursday that suggested EchoStar was “managing expectations” well. Eagan also noted EchoStar’s release of 4Q03 subscriber growth numbers Thursday only beat Wall Street consensus estimates because the company had lowered expectations and earlier subscriber projections by talking about “equipment availability” issues during a previous conference call. He continues to give the stock a “neutral” rating.

Bob Peck, a satellite analyst with Bear Stearns, maintained his “outperform” rating on EchoStar in his positive research note about the company Friday. His view is that accounting restatement would be “immaterial;” that the subscriber churn from the two-day shutdown of Viacom programming would be minimal; and that fourth-quarter subscriber growth of 340,000 suggests the company’s fundamentals remain strong. Peck added EchoStar beat his forecast of 320,000 net new subscribers in the fourth quarter as well as consensus projections of 315,000 new subscribers.

EchoStar still seems to have the magic touch but it merits close scrutiny.

Paul Dykewicz is senior editor and senior analyst of Satellite News. He can be reached at 301/354-1769 or at [email protected].