Sprint Stock To Crumble If It Doesn’t Merge Now: Analyst

October 12, 2017 - Written By Dominik Bosnjak

Sprint stock would likely crumble if its widely reported merger with T-Mobile was to fall through now, Craig Moffett of MoffettNathanson wrote in a Thursday note to investors. The veteran analyst speculated that the shares of the fourth largest mobile service provider in the United States would trade for under $3 in such a scenario, approximately 59 percent down from their current value of $7.16. Mr. Moffett’s analysis is based on a somewhat widespread belief that Sprint stock is presently still holding up because its value relies on a high possibility of a tie-up with the company that took its title of the third largest wireless carrier in the country a little over two years ago, whereas T-Mobile is trading as if the consolidation was far from a done deal, meaning its current market cap is more realistic and stable.

A similar sentiment could be inferred from recent comments made by a Jefferies Equity Research Americas analyst who projected that T-Mobile stock would surpass $90 in case of a potential merger with Sprint, thus predicting a growth in the range of 50 percent and stating that the company is presently undervalued in regards to its consolidation talks. In a hypothetical scenario in which the two propose a tie-up and are definitely rejected by U.S. regulators, T-Mobile would likely continue operating as usual, whereas Sprint’s market capitalization would incur a heavy hit. This state of affairs may suggest that Sprint parent SoftBank is more likely to push for a breakage fee seeing how it stands to lose much more than T-Mobile if their merger proposal is to never come to fruition. Industry insiders recently said that no such fee has been agreed so far but that the Japanese conglomerate is still in the process of considering it.

The rumored consolidation of two out of the four largest wireless carriers in the U.S. is said to be structured as an all-stock deal which would see Deutsche Telekom come out as the controlling party of the merged entity and T-Mobile current Chief Executive Officer John Legere being appointed to lead the new telecom giant. That scenario is still far from a reality, with latest reports suggesting that the Department of Justice would likely be against the merger.