Whether or not EchoStar buys DirecTV, you shouldn’t buy EchoStar.
EchoStar Corporation (SATS 5.09%) stock jumped 6.8% through 10 a.m. ET Monday after Bloomberg reported over the weekend that the satellite TV and cellphone company (EchoStar owns both DISH and Boost Mobile) is in talks to merge with AT&T‘s (T 1.96%) DirecTV.
As the news agency reported, a successful merger would create “the largest pay-TV provider in the US.”
What Bloomberg said about DISH and DirecTV
Caveats abound.
Discussions between AT&T and its co-owner of DirecTV, private equity company TPG, are at an “early stage.” The discussions are private, but sources say no agreement has been reached — and it’s possible no agreement will ever be reached. As for the companies said to be involved in the talks, AT&T, TPG, and EchoStar all declined to comment, with representatives of the companies calling the very concept of a merger “rumors” and “speculation.”
Nevertheless, Bloomberg proceeded to speculate that if a merger does happen, it would yield a satellite TV behemoth with 20 million subscribers. At the same time, the rise of streaming TV would seem to make even such a big business vulnerable to disruption. Indeed, as Bloomberg points out, DirecTV and DISH are already losing subscribers as the world transitions from satellite TV and cable packages to a streaming-centric business model.
Is EchoStar stock a buy?
A merger that would roughly double the number of subscribers to a company would logically extend the life of that company. But in this case, that probably means only that it would have more subscribers to lose and therefore more time to lose them before dwindling into irrelevance.
I still wouldn’t invest in it. Valued at $6.6 billion, EchoStar has earned a profit only twice in the last five years. Analysts who follow the company see EchoStar continuing to lose money as far as the eye can see (through 2029 at least). And the company is carrying more than $25 billion in debt, nearly four times its market cap.
This stock is a dog with fleas. Don’t get bitten.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
