Banc of America Securities analyst Armand Musey cut his near-term recommendations on Hughes Electronics, which operates direct broadcast satellite leader DirecTV; EchoStar Communications, which operates the DISH Network service; and Pegasus Communications Limited.
Musey cited lower average revenues per customer, higher advertising and promotion costs needed to lure customers away from stronger digital cable TV offerings, and a weaker economy that could affect the holiday shopping season.
"Over the past year, DBS subscriber acquisition costs have risen faster than average revenues per user, increasing subscriber payback periods and putting downward pressure on operating returns," Musey wrote in a research report. "A softening economy and a competitive Christmas will only exacerbate this phenomenon."
Shares of Pegasus, an independent DirecTV distributor, were hit hardest, falling more than 16 percent and flirting with a new 52-week low at $24.13. Pegasus has traded as high as $77.50 and as low as $24 in the past year.
Similarly, EchoStar shares tumbled more than 11 percent to $25.75, just shy of a new yearlong low. Over the past 52 weeks, EchoStar has traded as high as $81.25 and as low as $25.50.
Stock in Hughes Electronics, a division of General Motors, fell nearly 6 percent to $24.15. Hughes has traded as high as $47 and as low as $21.60 this year.
Direct broadcast satellite services had significantly cut into the market share of cable operators such as AT&T, Time Warner and Comcast in recent years. Their low-cost satellite-dish equipment, greater channel capacity and more features made satellite an attractive alternative to cable TV, which had for years been known for rate hikes and poor customer service.
But the cable industry has aggressively offered its own digital TV services, which enable operators to deliver more channels. A renewed commitment to customer service also is beginning to pay dividends.
In the long term, Musey still has faith in satellite television providers and believes satellite remains attractive for patient investors.
"We continue to believe that (satellite) has an inherent economic advantage over cable and that the (satellite) business model remains intact," he wrote, adding that advanced services should return average revenue per customer to previous levels.
Musey set a 12-month price target of $30 on EchoStar, $32 for Hughes and $47 on Pegasus.