What To Do With Sprint, T-Mobile Now That A Merger's Off The Table

Shares of Sprint Corp S were trading lower by more than 10 percent early Monday, while T-Mobile US Inc TMUS's stock was lower by more than 5 percent as merger talks between the two companies halted with no agreement reached.

The competitive landscape in the wireless sector going forward will continue pressuring prices as average revenue per user moves lower, KeyBanc Capital Markets' Brandon Nispel said in a Sunday note.

Sprint will likely "lead the way," and the company needs to focus on gaining market share — an area where it has been "moderately successful," Nispel said. (See Nispel's track record here.) T-Mobile will continue gaining market share at the expense of larger rivals Verizon Communications Inc. VZ and AT&T Inc. T, the analyst said. 

Sprint has everal strategic alternatives available to help boost its stock price, which has risen over the past year on "M&A hope," Nispel said. But until anything is accomplished, Sprint's stock looks overvalued at a time when churn will likely rise in 2018, the analyst said. 

Verizon and AT&T have "the most to lose" in the wireless telecom business, given the perception that they offer premium-priced products and higher margin profiles due to customer scale — but subscriber losses could delever the business, Nispel said. Between the two, Verizon has been "doing better" than AT&T in terms of subscribers, and this is likely to continue moving forward, he said. 

Nispel maintains an Overweight rating on T-Mobile's stock with an unchanged $72 price target. He downgraded Sprint's stock rating from Sector Weight to Underweight with a $5.50 price target.

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