Why is This Tech Company a Favorite of Billionaire Dubin?
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In a 13G filing last week, billionaire fund manager Glenn Russell Dubin of Highbridge Capital Management announced that his firm now had a 5.15% ownership stake in Echostar (NASDAQ: SATS), buying over 400,000 shares. Dubin co-founded Highbridge in 1992 with childhood friend Henry Swieca. In 2004, they sold a majority stake in the firm to JPMorgan Chase for $1.3 billion, and the firm has around $29 billion AUM.
At the end of 2Q, Highbridge owned 1.6 million shares of Echostar. The firm’s new stake is a 25% increase. With this purchase Highbridge overtakes Kensico Capital as the top shareholder of funds we track. Kensico owned 1.9 million shares as of the end of 2Q. Other notable managers owning the stock are Jim Simons and George Soros. Check out all the funds owning Echostar here.
The company is up over 40% year to date, but is relatively flat since February. However, the company is up almost 4% this week alone on the news that DISH (NASDAQ: DISH) will use one of Echostar’s satellites to offer its satellite-based broadband service to the rural U.S. market starting in October. Echostar is in the business of providing set-top boxes and related products for satellite television providers and is closely affiliated with DISH—owning and maintaining all of the company’s satellites.
DISH is the second largest satellite TV operator in the U.S., and will become the first to provide satellite net services in rural areas. DISH’s key rival, DIRECTV (NASDAQ: DTV), plans to launch similar services in 2013. DISH is already providing satellite Internet service using the network of ViaSat in certain parts of the U.S. particularly in the West Coast. Both the existing and new services will be offered under the dishNET brand. The FCC estimates that some 14.5 million rural people do not have access to high speed Internet.
George Soros and Jim Simons are both invested in DISH, in addition to Echostar. However, DISH’s competitor DIRECTV has one of the heaviest hitters in its corner when it comes to top fund managers—Warren Buffett—find out why Buffett is a DIRECTV subscriber. In addition to the Oracle of Omaha, Mason Hawkins has over 6% of his firm in DIRECTV.
ViaSat had another big announcement last month by saying that its Internet brand, Exede Internet, was expanding to serve commercial airlines. This will allow airlines to offer high-speed service to each passenger, versus an aggregate bandwidth that all passengers compete for. However, the stock is still flat over the past month, as EPS have missed estimates by at least 50% the last two quarters and full year 2012 is expected to be down over 100% from 2011. Most notable for ViaSat is that big-time investor Seth Klarman has over 10% of his firm’s, Baupost Group, 13F portfolio invested in the company.
Other notable competitor to Echostar and the satellite providers is TiVo (NASDAQ: TIVO). TiVo provides the services for accessing content across sources, such as linear television, on-demand TV and broadband video—namely through set-top boxes including DVRs—find out why Steven Cohen is building a position in TiVo. TiVo has seen its stock rally from a mid-summer slump after the company announced an acquisition of TRA, Inc. for $20 million.
As far as Echostar is concerned, the company should be considered a speculative play, trading at a trailing P/E of 20, but a forward P/E of 40. The satellite industry is ripe with indirect competitors, and as a result Echostar is only expected to grow EPS at a 5% CAGR over the next half-decade. The competition looks to only be getting stronger as Netflix expands and Amazon takes a serious look at the industry. We also do not like Echostar’s continued overexposure to DISH since breaking from the company in 2008. There is too much uncertainty in the satellite and streaming content market for us to get as excited as Highbridge is about the company.
This article is written by Marshall Hargrave and edited by Jake Mann. They don't own shares in any of the stocks mentioned in this article. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.