Since last Friday, shares of the satellite television and wireless operator EchoStar (NASDAQ: SATS) had blasted nearly 48% higher as of Thursday, a day in which the market is closed due to the observance of Juneteenth. The stock rocketed higher after media outlets reported that President Trump has encouraged the company and the U.S. Federal Communications Commission (FCC) to make a deal and end their dispute.
A complex regulatory battle
EchoStar owns several satellite, phone, and television companies, including Boost Mobile, HughesNet, Dish, and Sling. The company and its subsidiaries also own spectrum licenses, which grant it approval to use parts of the electromagnetic spectrum, which is critical for operating and providing various forms of wireless communications.
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Earlier this year, the FCC said they were investigating whether EchoStar is complying with the necessary federal laws to keep its spectrum licenses that it needs to build out its planned 5G internet service in the U.S. In response, EchoStar decided to not make interest payments on some of its bonds, which gave the company 30 additional days to make payments, in hopes the FCC would finish its review. These events led some to believe the company may ultimately default on the payments and enter bankruptcy.
Trump’s intervention and the administration’s deregulatory approach has likely made some investors think a deal will be made. Bloomberg also reported earlier this week that FCC Chair Brendan Carr told EchoStar to sell some of its spectrum licenses or potentially lose them.
Lots of potential outcomes
UBS analyst John Hodulik said in a research report earlier this week that the spectrum licenses could be worth as much as $35 billion. The stock only trades at a roughly $7.2 billion market cap. There’s also big upside if EchoStar ends up succeeding in building its wireless network.
However, investors should keep in mind that regulatory battles like this are often unpredictable. This is a risky bet, so I wouldn’t make it a core position. But if you want to take a chance, make sure you only invest what you can afford to lose.
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Bram Berkowitz 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.
