Sprint Corp (NYSE:S) has been the talk of the town over the past week, as investors debated whether or not now was a good time to buy the wireless provider. With some claiming that Sprint will finally get the merger with T-Mobile US Inc (NASDAQ:TMUS) it’s been hoping for and others suggesting that the firm has solid upside potential, Sprint stock might look pretty enticing at its sub-$8 per share price point.
However, I’d argue that the merger is pretty much the only reason to buy Sprint stock and, despite recent rumors, that merger is unlikely to happen.
Debt for Days
One of the biggest problems for Sprint is the firm’s massive debt pile. Sprint’s long-term debt obligations are upwards of $34 billion and the company’s struggle to keep its cash flow healthy has made it difficult to pay down that figure.
Wireless customers have a great deal of choice in the US and that has created a price war in which providers have to undercut each other to gain new subscribers. The trouble is that these ultra-low rate deals are typically unsustainable, so even though Sprint was able to grow its subscriber numbers in the past quarter, it’s unclear whether or not that can continue. More importantly, the subscriber growth came at a relatively large price.
As I mentioned, pretty much the only reason to buy Sprint stock right now is the firm’s potential merger with T-Mobile. However, even if it were a sure thing — which it’s not — the merger is a poor reason to buy S stock.
Sprint and T-Mobile tried this once before, back in 2014, and the two were rebuffed by regulators who said it would make the resulting company too strong and limit choices for wireless customers. Fast forward three years later and the two are considering a merge again. Many are pointing to the business-friendly Trump administration as a reason to believe that things will be different this time, but I’d be wary about relying on that as a reason to buy Sprint. Many people, including myself, were optimistic about the Walgreens Boots Alliance (NYSE:WBA) and Rite Aid (NYSE:RAD) merger due to the new administration, but the two were denied regardless.
Even if you are willing to pin your hopes on the FTC approving the deal, there is still the question of whether or not a merger will actually benefit S stockholders or not. SoftBank Group Corp (OTC:SFTBC), Sprint’s majority owner, reportedly said it would accept a deal that values Sprint at its market price. While that’s a better deal than the discount T-Mobile initially wanted to pay, it’s still not that great for shareholders.
Desperate for a Sale
Another reason Sprint stock is such a gamble is that the firm’s chairman, Masayoshi Son, appears to be trying to get rid of Sprint as soon as possible. Not only should that worry shareholders because it means he’s not trying to get the best possible deal, but it’s concerning because he clearly believes the company is dead weight.
On top of its shaky financials, Sprint struggles with a less-than-stellar reputation and the only way the firm has been able to attract customers has been through over-the-top promotions that cut significantly into Sprint’s profits.
Son has already shopped Sprint around to Charter Communications Inc. (NASDAQ:CHTR), which responded with an emphatic “no interest.” Now, with T-Mobile looking interested, it appears that Son is doing everything possible to make sure the deal goes through.
The Bottom Line on Sprint Stock
If the T-Mobile deal goes through, S stock might see a lift, especially if the stock declines further in the months ahead.
However, it appears that even if the merger makes it through regulatory approval, there will be very little upside for investors. Without a merger on the table, Sprint is simply too bogged down by competition and debt to make it a good buy — not to mention the fact that the firm’s chairman appears desperate to separate himself from the company.
Wireless is a tough space to buy in right now, but if you are going to add a firm to your portfolio, Sprint isn’t the best choice.
As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.