Tuesday, May 06, 2008

Sprint Nextel (NYSE:S): Short that upgrade?

We have some news & comments on Sprint Nextel (NYSE:S) that make the stock a short in my book despite the upgrade from Cowen & Co:

- Banc of America notes they don't view a declaration that one or another party is looking to the investment merits of Sprint as news. They'd be dismayed if every private equity and telecom concern, foreign and domestic, wasn't constantly assessing the M&A and competitive landscape. This said, their initial response is that the hash of three different technologies might represent looks more like Sprint Nextel 2.0 in the making than anything else. The 1.0 version of this exercise was warning enough, in firm's view, about the risks and rewards of achieving bigness for its own sake.

The notion that Sprint could conceivably spin off iDEN is also not novel in BofA's view. Since the close of the Sprint Nextel transaction itself, Sprint has been thinking about the day when it would sever the network from the core. Since writing down nearly the whole of the iDEN business, this prospect has seemed even more tangible. This said, the iDEN business is right now possibly Sprint's most profitable business, even if it is in decline.

Could Sprint be on the verge of recasting the new CEO's strategy barely weeks after articulation, separating the iDEN business from the CDMA business and throwing to the wind the long-sought synergy benefits of doubling up on one technology? And then selling the CDMA business to GSM-based T-Mobile? Tantalizing. Is this what the news out today is telling us? Not even close, in firm's view.

So, heading into possibly the poorest quarterly report in recent wireless history, Sprint shares are up not on what is in any way a better financial picture, but merely, as they read it, inference. The firm maintains Sprint's challenges are addressable, but over the long term, and until concrete signs emerge that the business is stabilizing, which is not now, it seems too incredible that an outside party will ride to the rescue of stockholders. Maintains Neutral.

- BMO Capital notes Qwest and Verizon Wireless have announced that they have entered into a five-year agreement for Qwest to market and sell Verizon Wireless services. The current service provider is Sprint. Qwest had discussed the potential of doing a wireless deal with Verizon stating that the current deal with Sprint did not provide it with access to updated devices, and voice/data service plans, hence hampering its success in the market.

Qwest currently has over 800,000 customers on Sprint's CDMA network. This will likely be a negative for Sprint as the firm expects these customers could migrate over to the Verizon network over time.

Maintains Neutral rating and $9 tgt on S.

Notablecalls: First of all, Cowen & Co is out upgrading S to Outperform based expectation of a near-term deal that would unlock value for shareholders. I think the wonderful people at Cowen should read the BofA call. There won't be a n-t value unlocking event. Even if there is one, it's likely going to be a deal with Clearwire where I just don't see any unlocking of value happening.

I spoke to NCN Telco just yesterday and he said that @ $9 S is fairly valued and that he'd be shorting there.

So, S is a short on today's Cowen upgrade induced gap-up.

At least in my book.

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