Raymond James Downgrades Sprint, Cites T-Mobile Uncertainty

Sprint Corp S's tie-up with T-Mobile Us Inc TMUS faces growing opposition and the likelihood of the merger proceeding has dropped from 80 percent to 55 percent, according to Raymond James.

The Analyst

Raymond James' Ric Prentiss downgraded Sprint from Outperform to Market Perform and removed its $8 price target.

The Thesis

T-Mobile's bid to buy Sprint faces growing opposition amid concerns the tie-up will result in potential negative impacts on the prepaid, wholesale and rural markets segments, Prentiss said in a note. Some state attorney generals could "become more vocal" in opposing the deal while the decision process for states like California may not come until the third quarter.

Prentiss said the companies could change the structure of the deal to better appease regulators, including divesting a prepaid brand, extending wholesale agreements with cable and rural operators, and commit to 5G coverage and service levels extended to rural areas and low-income households. Time is of the essence, however, and the odds of approval will likely fall lower as time passes.

Prentiss said the current structure of the deal values Sprint's stock at $9 per share given the attractiveness of its spectrum. The true value of Sprint's spectrum is only worth "what someone is willing to pay for it." As a standalone entity, Sprint's spectrum is worth $2 per share and its operations add another $2 per share in value which would value the stock at just $4 per share.

Price Action

Sprint's sock traded around $5.54 per share Monday morning.

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Photo credit: Chris Potter, via Wikimedia Commons