Sprint (NYSE:S) has been a tricky stock to follow since it made a deal to be acquired by T-Mobile (NASDAQ:TMUS). The agreement, in theory, sets the value of the company's shares at the transaction price indexed to the value of T-Mobile shares, since it's an all-stock deal.
There are two factors that now control Sprint's share price: market sentiment over whether the deal will clear regulatory hurdles and T-Mobile's stock price. The first is hard to gauge, but approval seems likely in the current political environment (perhaps with some concessions).
Sprint has operated as if the deal will happen while also celebrating its own results and continuing to go about business as usual. CEO Michel Combes walked that tightrope in his remarks in the company's first-quarter earnings release.
"Sprint continued to deliver solid results this quarter while embarking on our transformative merger with T-Mobile," he said. "By balancing growth and profitability, we were able to grow wireless service revenue sequentially, continue to add retail phone customers, generate net income for the third consecutive quarter, and improve the network."
Sprint's results really only matter if the deal doesn't happen. Its shareholders will receive 0.10256 T-Mobile shares for each Sprint share they own. That means that good news for T-Mobile is good news for Sprint shareholders.
T-Mobile added 1.6 million customers in its second quarter and raised its subscriber forecast for the rest of the year. It also delivered an increase in earnings per share from $0.25 in Q2 2017 to $0.92 in the same period this year. That has helped the company keep its share price steady, albeit slightly above the $64.52 at which it was trading when the Sprint deal was announced.
A stable T-Mobile share price is good for Sprint. After closing July at $5.43, Sprint's stock finished August at $6.11, a 12% gain, according to data provided by S&P Global Market Intelligence.
In the end, this is a waiting game. There's no reason to believe T-Mobile will falter in the next quarter as the company has been steadily delivering over 1 million new customers each quarter for more than five years.
What also remains unclear is how long federal regulators will wait. That creates maybe not instability but a sort of limbo for shareholders of both companies.