Why EchoStar Stock Soared Today

Key Points

• EchoStar will sell some of its 5G spectrum licenses to SpaceX.

• SpaceX will pay EchoStar $19 billion in cash, stock, and interest obligations.

• EchoStar believes this deal will put the Federal Communications Commission's investigation into the company to bed.

• 10 stocks we like better than EchoStar ›

Shares of satellite communications company EchoStar (NASDAQ: SATS), owner of the Sling and Boost Mobile brands, soared by 18.2% through 10 a.m. ET Monday -- for reasons that have nothing to do with either Sling or Boost Mobile.

On Monday morning, EchoStar announced it will sell its AWS-4 and H-block satellite spectrum licenses to SpaceX for the latter's use with Starlink. The total sales price: $19 billion.

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Image source: Getty Images.

EchoStar's big spectrum sale

EchoStar is inking a cash and stock deal to sell off some of its spectrum, which the Federal Communications Commission has criticized the company for failing to make full use of. SpaceX will pay $8.5 billion cash, cover about $2 billion worth of interest payments on EchoStar's debt to its lenders between now and November 2027, and give the company $8.5 billion worth of SpaceX stock.

Additionally, the companies have agreed that SpaceX will sell back to EchoStar access to the spectrum, for use by Boost Mobile subscribers desiring Starlink Direct to Cell service on their phones.

What this means for EchoStar

EchoStar says it expects that this spectrum sale, in conjunction with another one that it announced previously, "will resolve the Federal Communications Commission's (FCC) inquiries," and put its legal troubles to bed. That alone partly explains investors' positive reaction to the news.

And then there's the cash.

According to S&P Global Market Intelligence data, EchoStar -- which only has a market cap of about $22 billion -- is carrying more than $30 billion in debt, and paid out more than $480 million in interest last year. SpaceX's cash payments and interest coverage will significantly bolster EchoStar's balance sheet. Additionally, the stock portion of the sale gives EchoStar a chance to participate in the success of SpaceX. So this seems like a good deal for all involved.

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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.