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Better Buy: Frontier Communications vs. Sprint

By Daniel B. Kline - Jan 6, 2020 at 8:14AM

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Neither stock is very attractive.

Imagine being forced to make a bet on either the Pittsburgh Pirates or Florida Marlins to win the World Series. Both teams technically have a chance, in that they play in Major League Baseball, but that's really all they have going for them.

That's essentially the choice you're getting if you have to pick between Sprint (S) and Frontier Communications (FTR). Each company is a mess with little chance of a turnaround -- but if you have to buy one, there's a clear better pick.

A scene from a Sprint commercial.

Sprint has a pending merger with T-Mobile that will effectively bail out shareholders. Image source: Sprint.

Why is Sprint a better buy than Frontier?

Any comparison between the two stocks has to acknowledge that Sprint currently has a deal to be acquired by T-Mobile (TMUS -0.52%). That deal faces continued resistance from attorneys general in a number of states. It's possible the merger will fail, and that would leave Sprint in a terrible position.

The reality is, however, that federal regulators have already signed off on the merger. That makes it likely to happen, and that alone makes Sprint a superior stock. It's not that the merger price offers a premium over the range the stock has been trading at. The positive is more that shareholders will end up owning a piece of the new T-Mobile, a company set up for success in the wireless space.

Even if the merger fails, Sprint is marginally a better buy than Frontier. That's largely because the company has the backing of Softbank. That company has shown a willingness to keep its bad bets afloat, and it would likely support Sprint while it tried to find another buyer.

Frontier lacks a similar safety net. It has slowly been burning through cash as it sheds subscribers. The company has done a good job of stretching out its obligations and giving itself a long runway. Its problem, and it's a major one, is that when you keep losing customers each quarter, you'll eventually run out of money.

There's no reason to believe Frontier will buck pay-television trends and start adding customers. The company has no niche to serve, and it's dying a painful slow death.

Sprint is the better of two bad choices

Would you rather be eaten by a bear or killed by a lion? Would you prefer to sit through an Adam Sandler movie marathon or have to get a painful dental procedure? These are tough choices that people would only make if they really have no other option.

The only reason to own either of these stocks is because Sprint will probably end up part of T-Mobile. If you want to own a piece of the John Legere-led company, you're better off just buying it.

Without the merger, Sprint is a money-losing company in search of a buyer. Frontier is already that (and has little of value to sell). Neither of these companies belongs in your portfolio, because you don't have to face one of the terrible choices listed above.

When a brand loses money and has no path to change that, you should generally stay away. That's the case for both Frontier and Sprint, making them losers that investors should avoid at nearly all costs.

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Stocks Mentioned

Frontier Communications Corporation Stock Quote
Frontier Communications Corporation
Sprint Corporation Stock Quote
Sprint Corporation
T-Mobile US, Inc. Stock Quote
T-Mobile US, Inc.
$129.22 (-0.52%) $0.67
SoftBank Group Corp. Stock Quote
SoftBank Group Corp.
$40.24 (-2.16%) $0.89

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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