What Wall Streets Thinks Of The Canceled Sprint-T-Mobile Deal

Shares of Sprint Corp S lost more than 12 percent Monday morning and hit a new 52-week low of $5.72 after it was confirmed that ongoing merger talks with T-Mobile US Inc TMUS ended with no agreement reached.

Here's how some of Wall Street's notable analysts reacted: 

Oppenheimer: Negative For Wireless Carriers, Positive For Towers

The end to any merger agreements between Sprint and T-Mobile is a negative for the entire wireless sector, Oppenheimer's Timothy Horan said in a research report. The reason for this is simple: the already competitive environment in the wireless sector will now become even more aggressive, especially at a time when Sprint and T-Mobile are likely looking to boost their "low" market share of iPhones, Horan said. (See Horan's track record here.) 

Cell towers will likely emerge the winners, as carriers will be looking to offer superior network quality, the analyst said. Other winners will be companies that would likely work with carriers in areas such as Internet of Things, wireline replacements and 5G build outs, according to Oppenheimer. 

Argus: T-Mobile May Be OK

T-Mobile and its parent company Deutsche Telekom held most of the leverage during the merger talks, given a second-quarter report showing strong performance in subscriber acquisition, operational momentum and financial results, Argus' Joseph Bonner said in a Monday note. Sprint did show investors some impressive metrics in the second quarter, including EBITDA growth and narrowing bottom line losses, but at the same time its subscriber metrics slowed on a year-over-year comparison, Bonner said. (See Bonner's track record here.)

Sprint's parent company, Japan-based SoftBank, boasts deep pockets and seems to be "in for a penny, in for a pound," but its industry position is a "concern" over the long-term, the analyst said. On the other hand, T-Mobile can operate as a standalone company if needed, according to Argus. 

Citi: T-Mobile Will Stay Active

T-Mobile is likely to "stay active" in terms of exploring strategic opportunities, but any future action will likely be "measured and disciplined," Citi's Michael Rollins said in a Monday note.

Sprint and its parent company SoftBank will be looking to become "aggressive" in finding strategic partners, and the recent agreement with Altice USA Inc ATUS is one such example, Rollins said. (See Rollins' track record here.) 

Of the two mobile phone stocks, T-Mobile makes a "more compelling case" for value creation given its lower financial leverage, greater free cash flow generation and superior ability to return cash to shareholders, Rollins said.

The resumption of merger discussions between Sprint and T-Mobile in six to 12 months would not be surprising if the companies don't find "compelling strategic partners," the analyst said. 

UBS: T-Mobile To Lead, Sprint To Lag

T-Mobile is expected to launch a new "Un-carrier" marketing plan soon and will focus on margin improvement and free cash flow generation, said UBS' John Hodulik. The company is also likely to offer investors "more tepid" 2018 guidance, which would assume it has the "financial flexibility to maintain its current altitude," Hodulik said. (See Hodulik's track record here.) 

Sprint has the potential to show a rare combination of market share gains and margin expansion, but at a higher churn rate, the analyst said. As a result, the company may be in a position where it must invest more heavily in its network over time, which implies any longer-term margin gains will be more difficult to achieve, according to UBS. 

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Photo courtesy of T-Mobile.