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T-Mobile and Sprint Merger in Limbo Due to Antitrust Issues

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The US is waiting for District Court Judge Victor Marrero to decide whether the planned merger between T-Mobile (NYSE:TMUS) and Sprint (NYSE:S) will be allowed to proceed. In April 2018, T-Mobile agreed to acquire Sprint for around $26 billion. Last year, the Department of Justice and the FCC approved the merger deal. Antitrust regulators supported the merger deal on the condition that the proposed new T-Mobile would divest some wireless assets to Dish Network (NASDAQ:DISH). The pay-TV operator would acquire Sprint’s prepaid business and some spectrum licenses for around $5 billion. Dish is expected to replace Sprint by deploying its own 5G wireless network.

However, the merger deal has been blocked by about 14 state attorneys general due to antitrust issues. The states argue that the combination of the third and fourth-largest carriers would reduce the competition in the wireless industry and lead to higher prices. The multistate lawsuit is led by California and New York state attorneys general.

T-Mobile and Sprint merger

Last week, the closing arguments took place in the Manhattan courtroom. The judge’s ruling in the case is expected next month. New Street Research analyst Blair Levin thinks that there’s a low possibility that either side will end up appealing. According to a report from FierceWireless on Tuesday, Levin said, “In the case of the states, we think that if the judge rules against them, the combination of a low likelihood of victory and political considerations probably weigh against appealing.”

The report also said, “As for the companies, he wrote, We think that if the judge rules against them, he can do so in a way in which the odds of overturning the decision are very low. Moreover, both T-Mobile and Sprint would have business reasons for wanting to have clarity about the prospects of the merger before they, and all the other potential users of spectrum, have to commit to purchasing spectrum in the upcoming CBRS and C-Band auctions.”

Earnings expectations

Wall Street expects T-Mobile to report an adjusted EPS of $0.83 on revenue of $11.83 billion for the fourth quarter. In the fourth quarter of 2018, the company reported an adjusted EPS of $0.75, which beat the consensus estimate of $0.69. T-Mobile reported revenue of $11.45 billion, which beat the consensus estimate by about $57 million.

Wall Street expects Sprint to report an adjusted EPS of -$0.05 on revenue of $8.21 billion for the fiscal 2019 third quarter ended December. In the fiscal 2018 third quarter, the company reported an adjusted EPS of -$0.03, which missed the consensus estimate of -$0.02. Sprint reported revenue of $8.60 billion, which beat the consensus estimate by about $187 million.

Analysts’ recommendations

Let’s take a look at analysts’ recommendations and target prices for T-Mobile and Sprint. About 22 analysts cover T-Mobile stock as of today. Among the analysts, 17 recommend a “buy,” and five recommend a “hold.” None of the analysts recommend a “sell.” According to analysts’ consensus, T-Mobile stock has a mean target price of $91.05 and a current market price of $82.03, which suggests an upside potential of 11.0% in the next 12 months. The median target price is $94.00 today.

According to analysts’ consensus, Sprint stock has a mean target price of $6.27 and a current market price of $4.99, which indicates an upside potential of 25.7% in the next 12 months. The median target price is $6.00 on today. Among the 17 analysts tracking Sprint, two recommend a “buy,” 13 recommend a “hold,” and two recommend a “sell.”

Sprint and T-Mobile’s stock performance

In the last 12 months, Sprint and T-Mobile stocks returned -17.8% and 22.5%, respectively. Both of the stocks underperformed the S&P 500 Index, which rose 25.9% in the last 12 months.

T-Mobile stock fell 0.15% and closed trading at $82.03 on Tuesday. The stock traded 3.7% below its 52-week high of $85.22 and 25.1% above its 52-week low of $65.56.

Based on T-Mobile’s closing price on Tuesday, the stock was trading 3.8% above its 20-day moving average of $79.02. T-Mobile is trading 5.0% above its 50-day moving average of $78.11 and 4.0% above its 100-day moving average of $78.90.

In comparison, Sprint stock rose 3.5% and closed trading at $4.99 on Tuesday. The stock was trading 2.0%, 8.1%, and 16.0% below its 20-day, 50-day, and 100-day moving averages of $5.09, $5.43, and $5.94, respectively.

Read When Will the T-Mobile and Sprint Merger Close?Merger Spotlight: Has Sprint Stock Bottomed Out?, and T-Mobile and Sprint Merger Deal, Boom or Bust? to learn more.

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