Some news just came out that could be another obstacle facing Sprint (NYSE:S) in its ongoing merger saga with T-Mobile (NASDAQ:TMUS). Oregon just joined the multi-state lawsuit to block the merger, and Texas joined the suit earlier this month. 16 states are now part of the suit which alleges that the new combined company would be anticompetitive.
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The Department of Justice announced that it had reached an agreement which would allow the merger between T-Mobile and Sprint to move forward. As part of the agreement, DISH Network (NASDAQ:DISH) will buy some of Sprints assets. The DOJ said that without these actions by DISH the merger could “substantially harm competition.” The idea behind this thinking is that afterwards there will be four companies and the competition between them will prevent anticompetitive practices. Despite this, the states decided to pursue their lawsuits because they believe that the deal will ultimately lead to higher prices for consumers.
Wall Street isn’t sure whether or not this deal will close. 18 firms follow Sprint stock on a research basis. 14 of them have hold ratings on the stock while three firms have sell ratings on it. The average target price is $6.50, which is below current levels.
There is one buy recommendation on Sprint stock. The analysts at UBS believe the deal will close. They recently upgraded S stock from hold to buy and put a $10 price target on it. Though the upgrade was before the news about Oregon joining the lawsuit came out, it does not seem to have changed their opinion.
Sprint’s Earnings Review
Sprint just reported a net loss of $111 million, or a loss of 3 cents a share. This was in line with estimates, but well below last year’s net income of $176 million or 4 cents a share. Revenues dropped from $8.44 billion to $8.14 billion. This was slightly above estimates of $8 billion. The company also announced that had lost 120,000 subscribers which was less than the loss of 150,000 that analysts were expecting.
Overall, the Street seems to be slightly bullish on the numbers, but some analysts believe at this point the earnings do not really matter and will not influence the Sprint stock price. The question now for Sprint shareholders is if and when the deal will be closed.
Don’t hold your breath, because it isn’t going to happen anytime soon. The court date just got pushed back from October to December. This means that the deal will almost certainly not close this year, unless by some chance all the suits are settled before then.
What’s Next for Sprint Stock?
Sprint stock rallied up to the $8 level when UBS upgraded it, but news of additional lawsuits knocked it back down. There is support at $6.50. This was the top of the range from September through June and is also the average target price of the firms that cover it.
It is currently consolidating, or trading sideways around the $6.80 level. S stock will probably continue to do so until there is some more clarity with regards to the outcome of the lawsuit.
At the time of this writing Mark Putrino did not hold any positions in any of the aforementioned securities.
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