T-Mobile and Sprint Merger Looks Less Likely

The T-Mobile (NYSE:TMUS) and Sprint (NYSE:S) merger deal was announced in April 2018. The US telecommunications industry awaits U.S. District Judge Victor Marrero’s decision. He will largely determine whether T-Mobile will combine with Sprint. The merger deal could also be blocked by the California Public Utilities Commission, as reported by the Wall Street Journal.

T-Mobile and Sprint merger

More than a dozen states, led by the attorneys general of California and New York, have filed a lawsuit to stop the T-Mobile and Sprint merger deal. The states argue that the combination would reduce competition and result in higher prices for wireless consumers. Last month, the antitrust trial ended in the Manhattan federal court.

In 2019, the FCC and the Department of Justice officially supported the merger deal with certain conditions. The proposed new T-Mobile agreed to sell certain wireless assets to satellite TV operator Dish Network (NASDAQ:DISH). Dish would buy Sprint’s prepaid business and a certain spectrum for around $5 billion. The pay-TV operator would likely build its own wireless network. However, the states argued that Dish Network isn’t experienced enough to replace Sprint as the fourth-largest wireless service provider.

To learn more about the merger deal, read T-Mobile and Sprint Merger Faces Another Hurdle.

What are the merger odds?

According to a FierceWireless report on January 29, “KeyBanc’s Brandon Nispel predicted the chance of merger approval is 50/50. He also predicted that if the deal falls, Sprint would undergo a significant reorganization and try to finance the business through spectrum sales.”

A Cowen and Company analyst predicts that the possibility of the merger deal approval is at 40%, as reported by LightReading.

In addition, a Raymond James analyst lowered the possibility of the merger deal approval from 85% to 55%, as reported by LightReading.

Analysts’ recommendations

Analysts are bullish on T-Mobile. Among the 22 analysts that follow T-Mobile, 17 recommend a “buy” rating, while five recommend a “hold” rating. The ratings didn’t change from the last month. According to analysts’ consensus, the stock has a 12-month mean target price of $91.05. The average target price is at a 15% premium to the closing price of $79.19 on January 31.

Among the 18 analysts tracking Sprint stock, three recommend a “buy”—up from two in the last month. About 12 analysts recommend a “hold”—down from 13 in the last month. Meanwhile, three analysts recommend a “sell”—up from two in the previous month. According to analysts’ consensus, the stock has a 12-month mean target price of $5.99. The average target price is at a 37.1% premium to the closing price of $4.37 on January 31.

On January 31, Citigroup reduced its target price on Sprint stock from $8 to $5.5.

T-Mobile and Sprint’s stock price movement

In the last 12 months, T-Mobile and Sprint stocks returned 13.8% and -30.0%, respectively. Both of the telecom stocks underperformed the S&P 500 Index, which rose by 19.2% in the last 12 months.

T-Mobile stock fell 2.2% and closed trading at $79.19 on January 31. The stock traded 7.1% below its 52-week high of $85.22 and 20.8% above its 52-week low of $65.56.

Based on T-Mobile’s closing price on January 31, the stock was trading 1.5% below its 20-day moving average of $80.40. T-Mobile is trading 0.9% above its 50-day moving average of $78.47 and 0.1% above its 100-day moving average of $79.15.

Sprint stock fell 2.0% and closed trading at $4.37 on January 31. The stock was trading 10.3%, 16.3%, and 24.3% below its 20-day, 50-day, and 100-day moving averages of $4.87, $5.22, and $5.77, respectively.

On Thursday, T-Mobile is scheduled to release its fourth-quarter earnings results after the markets close. Wall Street analysts expect the company to post sales of $11.83 billion in the fourth quarter. The figure would mark a rise of 3.3% YoY (year-over-year) compared to $11.45 billion in the fourth quarter of 2018. Analysts also expect the company’s adjusted EPS to rise by 10.7% YoY to $0.83 in the fourth quarter.

Last week, Sprint reported its earnings results for the third quarter of fiscal 2019 which ended on December 31, 2019. The company generated revenue of $8.08 billion—a decrease of 6.1% YoY. Sprint missed Wall Street analysts’ consensus estimate of $8.22 billion. In the third quarter of fiscal 2019, the company reported an adjusted net income and EPS of -$311 million and -$0.08, respectively—compared to -$141 million and -$0.03 in the third quarter of fiscal 2018. Read Sprint Fights for Survival amid T-Mobile Merger to learn more.