Why is EchoStar stock skyrocketing 75%?

And where does Elon Musk come in?

EchoStar (NASDAQ: SATS) landed on a lot of investors’ radars on Tuesday after the satellite communications stock skyrocketed almost 75%.

The catalyst for the huge jump, that saw the stock price go from about $30 per share at Monday’s close to around $52 per share on Tuesday afternoon, was a deal it made with AT&T (NYSE:T).

EchoStar may not be all that familiar, but its brands are. The company owns Hughesnet satellite internet, Dish Network satellite TV and Sling TV, and Boost Mobile phone service. In this deal with AT&T, it sold 50 MHz of nationwide spectrum to AT&T for approximately $23 billion. Spectrum is basically the wireless airwaves that the company uses for its wireless phone brand, Boost Mobile.

The deal is a relief for investors, and an opportunity, as it provides EchoStar with some much-needed cash to pay down some of its $30 billion in debt. EchoStar has a debt-to-equity ratio of 159%, which suggests that its growth is being funded mostly by debt.

But perhaps even more importantly, the deal helps satisfy concerns by the Federal Communications Commission (FCC).

No more trouble with the FCC

The FCC has been concerned with EchoStar for not fully deploying its spectrum to build out its 5G network. In May, according to Fierce Network, the FCC launched an investigation into EchoStar and why it hasn’t used all of its spectrum.

Elon Musk, the owner of Starlink, an EchoStar rival, had complained to the FCC about EchoStar not using its spectrum to meet the FCC’s buildout requirements, according to Fierce.

So, this sale of spectrum licenses to AT&T should help to resolve the FCC’s concerns.

“EchoStar and Boost Mobile have met all of the FCC’s network buildout milestones,” Charlie Ergen, co-founder and chairman at EchoStar, said. “However, this spectrum sale to AT&T and hybrid MNO agreement are critical steps toward resolving the FCC’s spectrum utilization concerns.”

EchoStar and AT&T create hybrid network

As part of the deal, EchoStar and AT&T are creating a hybrid mobile network operator (MNO) relationship. 

Through this hybrid MNO infrastructure, Boost Mobile subscribers will continue to receive service from the company’s cloud-native 5G core connected to AT&T’s nationwide network. In addition, while primary connectivity will be provided by AT&T, Boost Mobile subscribers will continue to have access to the T-Mobile network. Further, the company will begin decommissioning elements of its own radio access network (RAN). But customers will see no service interruptions.

“This transaction puts our business on a solid financial path, further facilitating EchoStar’s long-term success, and enhancing our ability to innovate and compete as a hybrid network operator,” Hamid Akhavan, CEO and president of EchoStar, said.

The proceeds from the deal will be used to pay off debt and fund EchoStar’s operations and growth initiatives. Akhavan added that the company will continue to evaluate strategic opportunities for its remaining spectrum portfolio.

EchoStar stock is up 123% year-to-date. But it has a median price target of $28, which suggests a 45% decline. However, I would expect to see price target upgrades after this deal.

This looks like a great deal for EchoStar on several levels, but after a 75% surge in stock price, it might be best to let the dust settle a bit before considering a buy.