DISH: Raising Rating to BUY; New YE'21 Target $60 -- Jeffrey Wlodarczak, Pivotal Research Group

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We are raising our rating to BUY from HOLD and increasing our YE'21 target $10 to $60. We view our new target price as arguably conservative considering the significant upside potential in the DISH greenfield 5G wireless opportunity and to a much lesser extent from the likely inevitable merger with DIRECTV. DISH is in the process of rolling out what we view as a revolutionary cloud-native/software-driven 5G network with key partner AWS (AMZN, N/R) that should allow them/developers/AWS to relatively quickly develop 5G applications/services that have the potential to revolutionize wireless, particularly in enterprise markets. Our view is that the fundamental mistake naysayers make on DISH Wireless is to assume that their main strategy is to be the low cost/low price 4th U.S. wireless provider vs. our view that the most significant upside from DISH's innovative 5G wireless network is leveraging its open hyper flexible quick time to market nature for enterprise markets vs. the telcos closed encumbered networks (with millions of 2G/3G/4G customers and legacy brownfield networks that even TMUS admitted in an April '21 FCC filing will be very difficult to replicate DISH). DISH has less spectrum than its peers, but in our view this is irrelevant, as its peers are not going to be able to offer the type of 5G wireless services/applications that DISH/partners will be able to offer for many years. The proxy that we believe investors will increasingly think of for DISH is the example of TWLO (N/R) that was able to relatively quickly unbundle the telco stack and create unique quick to market software/cloud based products, enhanced by millions of developers, apps easily personalized by companies, mostly usage based pricing and today TWLO is worth nearly $60B. TWLO is something that telcos should have been able to offer but they were encumbered by their legacy closed systems and operating culture.

Importantly, having AWS as a key partner (and the former head of AWS as CEO of AMZN) should not only dramatically reduce costs to build out but AWS is highly incentivized to ensure DISH's success. We believe there are many companies that would be interested in offering billable (perhaps usage based) low latency (sub 10ms) applications that sit in the cloud and can constantly be updated w/ possible dedicated slices of 5G capacity (WMT, AMZN, TGT come to mind to support same day delivery networks as one example).

In our view, post the build out of DISH's first market (Las Vegas) in 2H the potential upside is likely going to become increasingly obvious to investors/telco analysts from DISH leveraging their completely unique architecture and we believe rather than simply be a dumb pipe DISH will likely participate in the revenue upside from its wireless partners. The bottom line is that DISH, in our opinion, is the best positioned 5G operator to actually fulfill the promise of 5G which in our view is not even close to being priced in the current valuation.

We are also not discounting the retail wireless opportunity for DISH and the company should be able to lever its unique architecture/cost structure (and its TMUS MVNO) to create innovative retail wireless offerings, take advantage of a healthy U.S. wireless pricing umbrella and over time we view cable as a logical partner on the retail side for DISH wireless given that DISH should be able to offer by far the most attractive MVNO vs. its peers. We also highlight that we do not believe that Rakuten is necessarily a good comp for DISH Wireless given their primary focus on retail (to support their myriad other businesses) the fact that most of their network is 4G and DISH is leaning on sizeable AWS investment/tech rather than building a complicated in-house cloud network. Importantly, we also highlight that Ergen's '20 compensation plan is driven by DISH stock price with tranches awarded up to a $258.07 DISH stock price or 550% above current share price levels which is a long shot but if wireless hits it is not out of the realm of possibility. The risk reward is simply too great which is only partially reflected in our $60 YE'21 target price therefore we are raising the rating from HOLD to BUY.

Where could we be wrong? 1) chip shortages could delay the roll-out (although we believe the Las Vegas roll-out is on schedule), 2) we expect inevitable tech/operational hiccups offset by clearly AWS wanting this to work, 3) the DISH Wireless network roll-out take could take years (although again we believe the enterprise focus will become more apparent post Las Vegas), 4) while not the most important driver of value here a DIRECTV deal may not happen until 2022 or at all, and 5) DISH may look to raise more equity capital medium/long term.


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