Sprint Earnings 'Better Than Feared,' But T-Mobile Merger Limbo Still A Problem

Sprint Corp (NYSE: S) reported mixed fourth-quarter results, with what one analyst called “better than feared” earnings, but the company continued to reinforce the Street’s impression that it’s just hanging on until it can complete its pending $26-billion merger with T-Mobile Us Inc (NASDAQ: TMUS).

Sprint’s $2.2-billion quarterly loss, falling subscriber totals and “dire” tone about the future on its earnings conference call weren’t doing anything to calm investors. The stock dropped more than 3 percent Wednesday, though the sell-side reaction was more measured.

Sprint’s quarterly wireless revenue and EBITDA came in ahead of Street estimates, but postpaid phones and average revenue per user were below expectations for the smallest nationwide cell service carrier.

The Analysts

Guggenheim’s Mike McCormack maintained a Neutral rating on Sprint with a $6 target price.

Wells Fargo’s Jennifer Fritzsche maintained a Market Perform rating on Sprint with a $6 price target.

RBC Capital Markets analyst Jonathan Atkin maintained a Sector Perform rating on Sprint with a $6 price target.

The Takeaways 

Guggenheim’s McCormack said the company’s call “painted a rather dire situation” on both some current metrics as well as a potential scenario should its T-Mobile merger — announced more than a year ago — not go through.  

“We doubt regulators will have a sympathetic ear for Sprint's organic woes,” the analyst said in a Wednesday note.

“And T-Mobile investors may begin to question the logic of consummating the proposed transaction.”

Wells Fargo’s Fritzsche told investors that Sprint’s fourth-quarter print was “better than feared,” but said the company was clear that without added scale of the merger it would be “very difficult for it to compete effectively vs. the other national competitors.” Until then, Sprint is doing what it can, she said.

“We believe S is focused on what is in its control right now, which is building a spectrum-rich 5G network and managing its liquidity as it waits for formal ruling on the (T-Mobile) merger." 

Any analysis on the fundamentals may not get much attention on the Street anyway, said RBC’s Atkin.

“Investor focus remains squarely on the announced combination with T-Mobile and, in the near term, we expect shares to trade on deal news flow/dynamics rather than on fundamentals,” the analyst said in a Wednesday note.

Price Action

Sprint shares were down 3.8 percent at $5.56 at the time of publication Wednesday. 

Related Links

Raymond James Downgrades Sprint, Cites T-Mobile Uncertainty

Sprint, T-Mobile Fall Amid Report DoJ May Not Approve Merger

Photo by Chris Potter via Wikimedia.