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Why Sprint Shares Soared

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Sprint (NYSE: S  ) rose more than 10% during intraday trading Friday following positive analyst comments and speculation the wireless carrier could be close to announcing a deal to acquire rival T-Mobile US (NASDAQ: TMUS  )

So what: First, Wells Fargo analyst Jennifer Fritzsche reaffirmed her outperform rating on Sprint stock, raising both the top and bottom ends of her valuation range by more than 40%, to $11-$11.75 per share. Despite her long-term bullishness, however, Fritzsche admitted her channel checks indicate Sprint will likely lose as many as 420,000 subscribers this quarter, or more than double the number she previously expected.

In addition, several reports have indicated that SoftBank, which owns an 80% stake in Sprint, has held informal talks with T-Mobile parent Deutsche Telekom regarding whether it would be willing to part with its stake in the fourth-largest U.S. mobile carrier. Specifically, the reports say, SoftBank would be willing to pay more than $19 billion for control of as much as 60%-70% of T-Mobile, perhaps as early as next spring.

Now what: Even if Deutsche Telekom decides it wants to sell, keep in mind the deal would not only need to overcome financing and regulatory challenges, but would also encounter lofty technical hurdles involved with integrating the two companies' respective disparate CDMA and GSM network technologies.

Even though investors seem to like the idea of further consolidation in the wireless carrier space, I personally wouldn't count on such a merger as part of an investment thesis for Sprint stock. Until Sprint can prove it has what it takes to stem the bleeding without acquiring T-Mobile, you'll find me on the sidelines.

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Related Tickers

9/30/2016 11:29 AM
S $6.61 Down -0.05 -0.75%
Sprint CAPS Rating: **
TMUS $46.87 Up +0.41 +0.88%
T-Mobile US CAPS Rating: ***
WFC $44.63 Up +0.26 +0.59%
Wells Fargo CAPS Rating: ****