Struggling telecom Sprint (NYSE:S) had yet another bad day Monday, with the stock off 4.5%, continuing S shares’ 37% plunge in 2012.
Usually, this space is dedicated toward looking at three pros and three cons of a given company. But in Sprint’s case, I ran into a little difficulty even coming up with three pros.
So, here’s a look at the many cons — and one pro — of Sprint stock:
Valuable Footprint: Sprint counts 47 million direct customers as well as 6.3 million customers from reseller agreements. The company also has made progress in dealing with defections in its postpaid business. The drivers include improved branding, competitive pricing and better customer service. And yes, Sprint’s adoption of Apple’s (NASDAQ:AAPL) iPhone certainly will help to boost revenues.
Leadership Vacuum: According to the Wall Street Journal, Sprint’s board has the company’s CEO, Dan Hesse, on a tight leash. This has even involved intervening in partnership negotiations and relations. But perhaps the clearest sign of the board’s power was when it blocked Hesse’s attempt to pull off an $8 billion acquisition of MetroPCS Communications (NYSE:PCS)
Competition: It’s fierce. U.S. telecom is practically a duopoly, as AT&T (NYSE:T) and Verizon (NYSE:VZ) have tremendous resources to invest in their networks as well as to launch huge marketing campaigns.
4G: Apple is pushing the industry to this next-generation platform — which will allow the use of high-end graphics and other advanced features. The problem is that Sprint’s LTE network is inadequate to handle the expected surge in usage, and the company does not have the cash to make critical investments. Sprint already is on the hook for $15.5 billion in iPhone purchases, and the next version almost certainly will be 4G.
Liquidity: Craig Moffett, an analyst at Sanford Bernstein, says a bankruptcy filing for Sprint is a possibility — perhaps by 2015, when a large amount of debt payments will come due. The obligations include $3 billion for Clearwire (NASDAQ:CLWR) and $2.6 billion for Sprint debt.
Antitrust: While AT&T and Verizon might want to buy Sprint, a deal would be next to impossible to close in lieu of tough federal antitrust authorities. Last year, they blocked AT&T’s proposed $39 billion deal for T-Mobile USA.
Perhaps Sprint will somehow find a way to get back on track. Of course, the company has been trying to figure things out for years. The challenges — such as intense competition and the huge financial drain of upgrading its network — are enormous.
One possibility for Sprint would be to pull off a strategic bankruptcy. This would wipe out lots of debt and help the company to become a much more competitive organization. Of course, it also would mean that common stockholders would get wiped out.
So in light of all this, the cons of Sprint stock clearly outweigh any possible benefits.
Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “The Complete M&A Handbook”, “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli or reach him via email. As of this writing, he did not own a position in any of the aforementioned securities.