Why EchoStar Rallied Again This Week

Shares of satellite telecommunications company EchoStar (NASDAQ: SATS) rallied 27.3% this week through Thursday trading, according to data from S&P Global Market Intelligence.

EchoStar stock has nearly quintupled this year. Having begun the year as a debt-laden, struggling cable company, EchoStar decided to sell its long-held wireless spectrum assets to other players, and received significantly more money for them than the market had anticipated. Moreover, some spectrum was sold to SpaceX, for which EchoStar received both cash and SpaceX stock.

This week, EchoStar received even better news regarding the value of its remaining spectrum assets, as well as reports of ever-escalating estimates for SpaceX's valuation.

With spectrum and SpaceX, who cares about the core business?

This week, Morgan Stanley telecom analyst Benjamin Swinburne upgraded EchoStar stock to an "Overweight" rating from "Equal Weight." The rationale is that Swinburne now expects EchoStar's remaining AWS-3 spectrum holdings to receive a strong sale price and a likely bidding war between Verizon and T-Mobile.

This year, the value of EchoStar's spectrum assets has been a significantly more important factor for the stock than the company's operating businesses across satellite cable, broadband, and wireless services. So to see an analyst increase the value of its remaining spectrum asset was important.

Additionally, for a spectrum sale to SpaceX this past summer and a more recent follow-on sale, EchoStar has received a combined $11.1 billion in SpaceX stock this year. The valuation of that SpaceX stock was uncertain at the time of the transactions, but was likely significantly lower than SpaceX's recent financing round, which was rumored to garner an $800 billion valuation.

Then this week, Bloomberg News reported that SpaceX will pursue an initial public offering sometime in 2026, at a rumored valuation of $1.5 trillion.

Needless to say, that valuation would be massive for EchoStar, and likely two to three times higher than the price at which EchoStar acquired its stock.

Image source: Getty Images.

Is there still upside in a stock up over 350% this year?

Even after this recent rally, EchoStar's market capitalization is only $30 billion. So, if EchoStar acquired its SpaceX stock at a $500 billion valuation and SpaceX manages to go public at a $1.5 trillion valuation, the value of EchoStar's SpaceX stock would be more than EchoStar's entire value. We still don't know exactly at what valuation EchoStar acquired its stock, but that's not an unreasonable estimate. Additionally, when EchoStar's other spectrum sales close, the company should be left with an additional $8.6 billion in net cash.

EchoStar's actual operating businesses in cable, broadband, and wireless are relatively unexciting. But investors shouldn't really care too much about those businesses these days, as the stock has become a net asset play.

Billy Duberstein and/or his clients have positions in T-Mobile US. The Motley Fool recommends T-Mobile US and Verizon Communications. The Motley Fool has a disclosure policy.