And the wait continues. For Sprint Corp (NYSE:S) shareholders, that is. Investors have been pouring into Sprint stock for more than a year in anticipation of the long-rumored merger between Sprint and T-Mobile US Inc (NASDAQ:TMUS), which would mean a conjoining of the third- and fourth-largest wireless carriers in America. So far, the deal hasn’t happened. Which begs the question: What if it doesn’t happen?
There are signs that it might not. In fact, T-Mobile’s CFO, Braxton Carter, said as much in an interview earlier this month. Here’s what Carter said about the possibility of a merger with Sprint:
“While the odds certainly have potentially increased, I don’t think it’s the least bit probable with high likelihood that you could actually transact, given some of the precedents that are out there.”
Instead, it appears that T-Mobile is looking to partner up with a cable provider, which would give it a whole new revenue stream.
Sprint Stock Rally Over?
It’s perhaps no coincidence that the rally in Sprint stock has stalled since Carter made those comments at the Deutsche Bank investor conference. S stock is down 3% in the past month, and is creeping toward four-month support around $8.20. It’s now trading below its 50-day moving average.
Some of the weakness in S could be a simple matter of the stock hitting pause after an incredible run-up. Even with the recent drop off, Sprint stock is still up more than 130% in the past year, and has more than tripled since bottoming at $2.45 in January 2016. At one point this January, S touched as high as $9.43 per share.
But a lot of that investor fervor was based on renewed rumors of a deal with T-Mobile, which Sprint has been attempting to acquire since 2014. Momentum for the Sprint-T-Mobile merger picked up earlier this year when Reuters reported that Sprint’s parent company, Softbank Corp. (Japan) (OTCMKTS:SFTBY), would be willing to give up control of Sprint to help facilitate a merger with T-Mobile. Now, it seems, T-Mobile might not feel the same way.
Considering that Sprint is not a profitable company and hasn’t sustained a full year of sales growth since 2012, the recent merger talk has been a gift for the stock. Few of the people who cover Sprint stock think it can last.
Among 21 analysts tracked by Yahoo! Finance, the average price target for S stock is $7.28 — more than 14% below its current share price. That illustrates the doubt industry experts have that the T-Mobile deal will get done after three years of all talk and no action.
Without T-Mobile, Sprint goes back to being just another company that’s seemingly past its prime. In addition to the lack of earnings, the company has actually been leapfrogged by T-Mobile as the third-largest wireless carrier in America.
T-Mobile routinely grows its sales by double-digits. Sprint hasn’t achieved double-digit sales growth since the fourth quarter of 2014. Thus, it’s easy to see why there’s interest in a merger on Sprint’s side, but perhaps not T-Mobile’s.
Don’t Buy Sprint Stock
Carter’s comments are an indication that a Sprint-T-Mobile merger is a long shot. And it never makes sense to invest in long shots. With a deal becoming increasingly unlikely with every passing day, now is the time to sell Sprint stock if you own some.
If you do, hopefully you bought the stock a year ago or, if you were really lucky, when it bottomed 15 months ago. You made some really nice gains, if that was the case.
But right now, those gains are being held together by duct tape, and Sprint stock could be one dismissive comment from a T-Mobile executive away from having the roof cave in. Don’t hold onto Sprint stock based on the faint hopes of a T-Mobile deal saving the day.
Hope is never a good investment strategy.
As of this writing, Chris Fraley did not hold a position in any of the aforementioned securities.