Earnings Preview: DISH Network

DISH Network Corp.(DISH - Analyst Report) is scheduled to release its fourth quarter 2011 results on Thursday, February 23, before the opening bell. The current Zacks Consensus Estimate for the fourth quarter is pegged at 61 cents per share, representing an annualized growth of 9.57%.

With respect to earnings surprises over the trailing four quarters, DISH has outperformed the Zacks Consensus Estimate in two of the four quarters. The average earnings surprise was a positive 1.89%, implying that the company has outdone the Zacks Consensus Estimate by the same magnitude over the last four quarters.

Third Quarter Highlights

On November 7, 2011, DISH reported its third quarter 2011 financial results. Quarterly GAAP net income was $447.7 million or 71 cents per share compared with of $446.3 million or 55 cents per share in the prior-year quarter. Reported EPS of 71 cents in the quarter 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. Total revenue in the quarter also surpassed the Zacks Consensus Estimate of $3,582 million

Average monthly subscriber churn rate in the third quarter of 2011 was 1.83% compared with 1.98% in the year-ago quarter. Average revenue per user (ARPU) in the reported quarter was $76.99 compared with $74.36 in the prior-year quarter.

Agreement of Estimate Revisions

In the last 30 days, out of the 14 analysts covering the stock for the fourth of 2011, none revised their EPS estimates. Similarly, out of the 14 analysts covering the stock, none increased or decreased the estimate for the first quarter of fiscal 2012

For fiscal 2011, over the last 30 days, out of the 10 analysts covering the stock, none revised their EPS estimates. However, for fiscal 2012, one out of the 14 analysts covering the stock slashed the EPS estimates.

Magnitude of Estimate Revisions

During the last 30 days, the current Zacks Consensus Estimate was in line with the previous estimate of 61 cents for the fourth quarter of 2011. However, for the first quarter of 2012, the current Zacks Consensus Estimate was just a penny below the current estimate of 70 cents. For fiscal 2011, during the last 30 days, the current Zacks Consensus Estimate was at par with the prior estimate of $3.30. Likewise, for fiscal 2012, the Zacks Consensus Estimate was just a penny shy of the current estimate of $2.72.

Earning Surprises

In the previous quarter, DISH Network reported EPS of 71 cents, which missed the Zacks Consensus Estimate by a penny. The current Zacks Consensus Estimates for the ongoing contains a 0.00% upside potential while for the first quarter of fiscal 2012 reflects a 7.14% downside potential (essentially a proxy for future earning surprises). Similarly, for fiscal 2011, the Zacks Consensus Estimate reflects 0.00% upside potentials. However, fiscal 2012 contain a downside risk potential of 9.23%.

Our Recommendation

Availability of higher unutilized spectrum assets and higher marketing expenditure will act as catalysts for DISH Network going forward. Moreover, the acquisition of Blockbuster will enable DISH Network to offer several movie streaming services over the Internet, thus allowing them to counter the competitive threats from cheap online movie distribution companies like Netflix, Inc. (NFLX - Analyst Report) and Hulu.

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

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