Quote from: terainvestment on May 02, 2008, 06:09:09 AM
Hi David,
I read in AUTH analysis that S (Sprint Nextel) has a target price of 12.5$
Do you think is a good investment or a stock to avoid?
"S", just by the ticker symbol I knew it had to be a large cap. Indeed, it is a $22.5 B market cap.
S has been moving up on rumors (http://blogs.barrons.com/techtraderdaily/2008/05/06/sprint-cowen-upgrades-on-deal-speculation/?mod=BOLBlog?mod=yahoobarrons), be it a combination with Clearwire (CLWR) on Wimax, sale or spin of Nextel, possibly to Cyren Call and a sale to Deutsche Telekom.
I guess a sale to DT would be the most bombastic news, but probably it won't happen, or else there wouldn't be this publicity. Most buyouts come by surprise, or does anyone think a company will let its takeover plans become publicly known information before the deal is closed and then have to pay a higher price (or a lower premium) to shareholders?
The sale of Nextel would also be positive news because that unit has been a drag on Sprint's profits.
Now, the one that really materialized (news out after hours), a $12 B combination with CLWR to build WiMax (http://www.marketwatch.com/news/story/sprint-clearwire-reportedly-12-billion/story.aspx?guid=%7B240442CA%2D0C6E%2D4464%2DB868%2DF87CB1E613FB%7D&dist=TQP_Mod_mktwN), with the financial backing of Intel, Comcast, Time Warner and Google is also good news, but I don't think it will have a very significant financial impact over the short and medium term. Anyway, the stock was up an additional 5.5% after hours.
I see the trading action as a classic "buy the rumor, sell the fact" type of trade. And in this case, the fact could have been a lot better, so I say the stock opens sharply higher but closes in the red today.
Other than this news I don't like the stock at all, too much market cap for too little and too volatile results.