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Run Away From Sprint Stock (S)

Since the start of 2014, shares of Sprint Corp (S) have lost roughly 60% of their value. And while there has been a rally since early August, investors should still be cautious about Sprint stock.

sprint-stock-sprint-corpGranted, it’s encouraging that Softbank has recently been buying up shares, increasing the overall stake to about 82%. However, the company indicated it would cap its ownership to no more than 85%. (Going above this level would require a tender offer for the remaining shares on the market.)

And yes, the mastermind behind Softbank is one of the world’s top tech minds, Masayoshi Son. But even he has been known to fumble from time to time. In fact, last year he attempted to sell all his Sprint stock to rival T-Mobile US (TMUS). But the deal had to be dropped because of antitrust concerns.

So why is Son getting aggressive on Sprint stock again? Well, he thinks there is “light at the end of the tunnel,” and he is particularly encouraged by the recent strength in user growth.

But then again, Son is really in a tough spot. Given that a sale of the company would be tough to pull off — and wouldn’t fetch much of a premium because of the company’s troubles — he has really no choice but to stick with Sprint.

Sprint Stock Has a Large Hill to Climb

In the meantime, the financials of the company continue to deteriorate. Just this week Moody’s (MCO) lowered its rating on the bonds from B1 to B3, which is six levels below investment-grade.The firm also indicated that Sprint may not have enough resources to refinance the $12-plus billion in debt that will come due over the next five years.

In other words, if there is more equity funding needed to bolster the balance sheet, it could mean much more dilution for holders of Sprint stock.

Moody’s also noted that the competitive environment is brutal. If anything, it looks like the mega carriers like AT&T (T) and Verizon (VZ) are gearing up for a big fight to maintain their customer bases.

Another big issue is Apple (AAPL), which has launched a financing program for the purchase of phones. It allows customers to switch to another carrier by changing out the SIM card. So yes, this could prove to be highly disruptive for the carriers as they will need to scramble to find ways to keep their customers — and probably means lower prices, too.

Interestingly enough, there is even buzz that Apple will eventually launch its own mobile network, which would certainly wreak havoc on the industry. Given all this turbulence, it should be no surprise that AT&T and VZ have been moving beyond their mobile platforms by acquiring companies like DirecTV and AOL.

But for a company like Sprint, which is saddled by debt and is the No. 4 player in a fairly mature market, there just isn’t much firepower to take on the goliaths or to diversify away from its platform. Besides, the company has also lagged behind T-Mobile, which has been savvy in differentiating itself with standout branding and marketing campaigns.

In other words, it’s pretty tough to make a case for S stock right now, especially since the company really doesn’t have the resources to put up a strong fight. Stay away from Sprint stock until things begin to look a lot better.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/09/sprint-stock-s-run-away/.

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