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Sprint Shares Under Pressure

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By Joel Elconin:

Shareholders of Sprint (NYSE: S) are hoping that the early price action in 2014 is not indicative of its full year performance.

Since ending 2013 at 10.75, Sprint has declined 9% (9.70) after a solid 90% gain for the full year. Whether or not this is a much-needed pullback or a change in trend has yet to be determined.

According to Stifel analyst Christopher King, the run for Sprint is over, as he downgraded the issue to a Sell rating on January 3. He cited the 71% gain during the fourth quarter of 2013 as one of his reasons.

Also, King is skeptical the of the company's near-term merger with T-Mobile (NYSE: TMUS) and other acquisition prospects. King's concerns focus on the regulatory approval of the deal, mainly antitrust/regulatory objections to the proposed merger.

Finally, the Stifel report added the issue remains at an operational disadvantage to Verizon Communicatons Inc. (NYSE: VZ) and AT&T (NYSE: T). The firm questions whether or not Sprint will be able to add a significant number of postpaid subscribers in the near-term.

On the other hand, on the same day of the Stifel downgrade, Citi analyst Michael Rollins raised his price target from 8.50 to 10.50 to better reflect option value from the possible merger scenario.

As Sprint has already reached that level in the four previous trading sessions, it is hard to understand what he was actually trying to convey to shareholders. That Sprint has already made its top or that it will return to his projected level.

While the Wall Street analysts battle it out, Sprint's share price appears to be siding with Stifel analyst King's opinion. Since ending the year at 10.75, the issue is now trading hands at 9.69 after rebounding from an early morning low of 9.35 in Monday's trading.

Sprint bulls can find some comfort in the fact the morning low coincided with December 20 low (9.35). Putting a double bottom place and an area where shorts may look to cover or new longs look to enter issue on weakness in price.

Sprint bears will argue it is merely a “dead cat bounce” after a steep decline in the first four trading sessions of the New Year. Wagering that on its next visit to 9.35, will be its last and the issue will move lower to the 9.00 level, where it bottomed at 8.92 on December 19.

Of course, if the merger deal with T-Mobile does not to fruition, there may more downside pressure on the issue. As Spint was changing hands closer to the 8.00 level, when the merger rumors surfaced in mid-December.

In order for the issue to return to its recently made all time high on December 24 (11.47), the merger must be approved quickly and the two companies put the synergies to work in short order.

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