Analysts Name Echostar, Panamsat Their Top 1999 Picks [GSTRF pick]
satellitetoday.com
Monday, Feb 8
by Paul Dykewicz, Senior Analyst, Satellite
News
The star performers among satellite stocks this year are expected to be
EchoStar Communications Corp. [DISH] and PanAmSat Corp.
[SPOT] due to their prospects for strong revenue and subscriber growth,
according to a panel of top Wall Street analysts who spoke at the
SATELLITE 99 Conference in Washington yesterday (2/2).
Satellite companies in the development stage previously had been viewed
as the industry's darlings by Wall Street, but that trend is changing and the
next stocks to benefit will be those with operations that clearly are on the
ascent, said Eric Weinstein, a vice president with Donaldson, Lufkin &
Jenrette.
Direct broadcast satellite (DBS) service providers such as EchoStar and
DirecTv Inc. [GMH], once lumped together with humdrum cable
companies, now are companies on the rise as they stand poised to become
cash positive.
Tension has been building in the investment community as many satellite
companies move from the dream world of concept to the risks and cold
reality of commercialization, Weinstein said. Little bad news is ever heard
about a business that is not yet operational since there is not much that can
go wrong, he said.
"My guess is there is probably a flight to safety, marked by a return to the
established carriers now that most of the technical and political issues
appear to be dead," Weinstein said. Short term, expect further volatility
among many satellite stocks, while longer term there is plenty of room for
upside, he predicted.
Tom Watts, a satellite analyst and first vice president with New
York-based investment firm Merrill Lynch [MER], said, said he also
expects EchoStar to rise further this year after its stock price led the
industry by soaring 229 percent last year. "DBS is finally paying off," Watts
said.
Earnings before interest taxes, depreciation and amortization (EBITDA)
took longer than expected to reach due to the high cost of acquiring
subscribers and the subsidies offered by DBS providers to reduce the cost
of satellite receiving equipment. The industry's consolidation in recent
months has set the stage for EchoStar to achieve positive cash flow by the
end of this year, Watts said.
Marc Nabi, an analyst with New York-based Morgan Stanley, said
DBS is positioned to continue flourishing with new subscriber growth this
year. EchoStar's proposed acquisition of precious orbital slots from News
Corp. [NWS] and MCI Worldcom [WCOM] and DirecTv's recent
moves to buy United States Satellite Broadcasting [USSB] have
positioned both providers to offer up to 500 channels and 370 channels,
respectively, Nabi said.
"The cable TV industry doesn't have that kind of channel capacity yet,"
Nabi said.
EchoStar's strength is reflected in its recent refinancing of $2 billion that
allowed the company to cut $50 million to $60 million in annual interest
costs, Nabi said.
Strong performance also is expected from PanAmSat [SPOT], the
analysts agreed. A series of in-orbit anomalies and the failed launch of the
Galaxy X hindered the company's stock price gains last year, but rosier
times are ahead for the world's largest commercial provider of satellite
broadcast services, Nabi said. The trend toward offering high definition
signals that allow a compression rate of 2 channels for each transponder
instead of the current rate of 8 channels for each transponder will boost the
demand for fixed satellite services, Nabi said.
"My recommendation is to buy satellite operators today that have proven
track records," Nabi said.
James Linnehan, a senior satellite analyst at NationsBanc Montgomery
Securities, said the valuation of satellite companies is a bit restrained
because far fewer analysts cover the industry and urge the purchase of
such stocks than in the telecommunications industry. Still, satellite
companies offer advantages over other telecommunications technologies
for providing bandwidth on demand, end-to-end connectivity and global
service, he added.
Vijay Jayant, a satellite analyst with Bear Stearns, said the ability of
Iridium LLC [IRIDF] and Orbcomm [ORB] to achieve their subscriber
growth targets this year will be important for the other low-Earth-orbit
(LEO) satellite systems that follow them. A failure to attain those
subscriber goals could cause investors to lose confidence in those systems
as well as similar ones that have yet to begin commercial service, he
added.
Despite that risk, Globalstar [GSTRF] is a stock worth buying, Jayant
said. The company will be the next so-called Big LEO besides Iridium, and
its outlook can only improve after the stock was beaten down last year
following the failed launch of 12 of its satellites aboard a Zenit rocket.
Globalstar since then has raised additional capital, obtained more reliable
launchers to fully deploy its system and plan to introduce commercial
service during the third quarter this year.
SATELLITE 99 Show Coverage
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