Sprint Fights for Survival amid T-Mobile Merger

Sprint (NYSE:S) stock fell 4.14% on Monday and closed the trading session at $4.63. The company reported weak results for the third quarter of fiscal 2019 before the market bell on Monday. The third quarter ended on December 31. Sprint missed analysts’ revenue and earnings estimates in the third quarter.

In the third quarter, Sprint reported an adjusted EPS of -$0.08 compared to its adjusted EPS of -$0.03 in the third quarter of fiscal 2018. Wall Street analysts expected the company to report an adjusted EPS of -$0.05 in the third quarter.

Sprint’s net revenues fell 6.1% YoY (year-over-year) to $8.1 billion in the third quarter, which missed analysts’ expectation of $8.2 billion. The company reported revenues of $8.6 billion in the third quarter of fiscal 2018.

Sprint’s wireless service revenue declined by 4.7% YoY to $5.2 billion in the third quarter. The company also reported an adjusted EBITDA of $2.5 billion—compared to $3.1 billion in the third quarter of fiscal 2018.

Sprint’s key metrics

In the third quarter of fiscal 2019, Sprint gained 494,000 postpaid net customers, which includes net losses of 115,000 postpaid phone customers—lower than analysts’ expectation of 160,000 net losses. The company lost 26,000 postpaid phone customers in the third quarter of fiscal 2018.

In the third quarter of fiscal 2019, Sprint also lost 174,000 net prepaid customers. The company reported a postpaid phone churn rate of 2.06% in the third quarter, which was more than its rate of 1.84% in the third quarter of fiscal 2018.

According to a Reuters report, “Sprint focused its 2019 efforts on aggressively deploying its network of 5G, the next generation of wireless, to nine major cities. The company has not announced any new expansion plans as it hopes to solidify the merger with T-Mobile and use the combined strength of its larger competitor’s 5G network.”

T-Mobile and Sprint merger deal

The T-Mobile (NYSE:TMUS) and Sprint merger deal was announced in April 2018. However, the merger is still pending. Currently, the merger faces a court challenge filed by more than a dozen state attorneys general. The states argue that the merger deal would reduce competition and lead to higher wireless prices for consumers. However, T-Mobile and Sprint don’t think that the combination will lead to increased prices for consumers. The merger will allow the proposed new T-Mobile to compete effectively with market leaders like AT&T (NYSE:T).

The antitrust court trial concluded. The companies don’t have the final decision yet from U.S. District Judge Victor Marrero. In 2019, the FCC officially supported the merger deal between T-Mobile and Sprint. Last year, the Department of Justice also approved the merger deal. T-Mobile and Sprint agreed to divest certain wireless assets to Dish Network (NASDAQ:DISH). Dish agreed to acquire the divested wireless assets for $5 billion. The proposed new T-Mobile agreed to deploy a 5G network across the US.

In the press release for the third quarter of fiscal 2019, Sprint CEO Michel Combes said, “We remain excited by the opportunity to provide our customers a better network and customer experience with New T-Mobile and are encouraged by the progress we have made since the merger was announced.”

The report also said, “We remain optimistic about the remaining regulatory steps necessary to complete the merger as we continue to work with all stakeholders including the California PUC and various State Attorneys General.”

Peer comparison

For the fourth quarter, analysts expect T-Mobile to report revenue of $11.8 billion, which represents growth of 3.3% YoY from $11.4 billion in the fourth quarter of 2018. Analysts expect T-Mobile to post an adjusted EPS of $0.83, which reflects growth of 10.7% YoY.

For the fourth quarter, analysts expect AT&T to report revenue of $47.0 billion, which represents a fall of 2.2% YoY from $48.0 billion in the fourth quarter of 2018. Analysts expect AT&T to post an adjusted EPS of $0.87, which reflects growth of 1.2% YoY.

Analysts’ recommendations

Most analysts are on the sidelines on Sprint stock after its earnings for the third quarter of fiscal 2019. Among the 17 analysts, 12 recommend a “hold,” three recommend a “sell,” and two recommend a “buy.” Analysts have a target price of $6.27 on the stock, which implies an upside of 35.4% based on its closing price of $4.63 on Monday.

In comparison, analysts favor a “buy” rating for T-Mobile. As of Monday, 17 analysts recommend a “buy,” while five recommend a “hold.” On the same day, the analysts’ consensus target price was $91.05, which implies a 12-month return potential of 12.8%.

Stock performance

On Monday, Sprint was trading at $4.63—a fall of 11.1% since the beginning of 2020. The company was also trading at a discount of 42.6% to its 52-week high of $8.06 and at a premium of 0.9% to its 52-week low of $4.59. In the last 12 months, Sprint stock has fallen 25.1%.

Sprint stock was 7.6%, 13.3%, and 21.0% below its 20, 50, and 100-day moving averages of $5.01, $5.34, and $5.86, respectively. The stock’s 14-day RSI (relative strength index) score is 28.7. The score indicates that the stock is trading in the “oversold” zone.

On Monday, Sprint stock closed near its lower Bollinger Band level of $4.67. The value also indicates that the stock is oversold. Sprint’s 14-day MACD is -0.10, which shows that the stock is in a downward trading trend.

In comparison, T-Mobile stock fell 1.05% and closed trading at $80.72 on Monday. The stock traded 5.3% below its 52-week high of $85.22 and 23.1% above its 52-week low of $65.56.

Based on T-Mobile’s closing price on Monday, the stock was trading 1.0% above its 20-day moving average of $79.92. T-Mobile is trading 3.2% above its 50-day moving average of $78.25 and 2.1% above its 100-day moving average of $79.07.

Read T-Mobile and Sprint Merger Faces Another Hurdle and Merger Spotlight: Has Sprint Stock Bottomed Out? to learn more.