While Sprint Investors Are On M&A Watch, Softbank Believes Carrier Can Be Profitable On Its Own

Sprint Corp S investors are always on the lookout of any M&A news regarding the company given the prospects of U.S. regulators allowing four operators to consolidate to three. But, Sprint’s 80 percent plus shareholder SoftBank remains very positive on U.S. carrier’s efforts as a standalone company despite being “open” to all options, including a deal with T-Mobile US Inc TMUS.

The Japanese firm pointed to Sprint’s improved postpaid volumes, cost savings and profitability and believes Sprint can achieve profitability similar to its own levels over time. In fact, SoftBank’s third-quarter operating profit rose 71 percent, driven by turnaround at Sprint.

SoftBank also noted Sprint can offer the United States’ best “network coverage, speeds, and capacity” while capex remains below peers “the next few years.”

Deutsche Bank Commentary

Meanwhile, Deutsche Bank analyst Matthew Niknam pointed out at SoftBank’s recent open-minded approach to potential deals as either a buyer, seller, or via merger of equals. This is different from the past, where SoftBank took a “buyer’s” approach to M&A with “only one company as a target” (presumably T-Mobile).

“However, we continue to believe a TMUS combination remains a top M&A priority, especially given improved ops, a stronger stock currency/funding rates, and a favorable regulatory backdrop,” Niknam wrote in a note.

That said, though Sprint will more actively consider a potential deal with T-Mobile in upcoming months, Niknam places only a 10 percent probability on deal approval.

The low probability is based on regulatory hurdles and high concentration risk. Also, Deutsche Telekom has other options to consider and may not be keen to merge with a national peer when such efforts were said to have already failed twice.

Given “full valuation,” Niknam rates Sprint Hold, with a price target of $8.

At last check, shares of Sprint were up 1.21 percent at $8.77.