Shares of Sprint Nextel Corp. received an unexpected wallop after a Wall Street analyst said the nation’s third-largest mobile operator faced a risk of bankruptcy.
The stock price was down 4.33 percent, or 13 cents, on the New York Stock Exchange as of 11:39 a.m. ET after Bernstein Research analyst Craig Moffett cut his rating on the stock, noting that a bankruptcy filing by Sprint was a “very legitimate risk.”
“To be clear, we are not predicting a Sprint bankruptcy,” Moffett was quoted by Forbes as stating in the research note. “We are merely acknowledging that it is a very legitimate risk. And notwithstanding a recent rally in Sprint shares, we believe that risk is rising.”
The analyst also reportedly cautioned that an Apple iPhone supporting 4G LTE “poses new and larger risks” for the carrier.
“We believe an LTE iPhone will likely be badly disadvantaged on Sprint’s network, potentially impairing sales … at a time when Sprint is subject to a punishing take-or-pay deal with Apple,” Forbes quoted Moffett as writing. “The problem is 4G. Sprint doesn’t have enough free-and-clear spectrum on which to launch a competitive LTE network, and it doesn’t have the money to clear spectrum that’s already in use. We expect Sprint’s competitiveness to begin to backslide when LTE becomes the nation’s de facto standard.”
Moffett said that Sprint faces different very two outcomes. Under the rosier projection, the company upgrades its network, stabilizes the financial position of its partner Clearwire Corp. — the high-speed wireless operator and provides a compelling 4G product, Forbes said, citing Moffett’s report.
The other outcome is one Sprint obviously hopes to avoid.
“In the second, some combination of its gargantuan take-or-pay contract with Apple, a hobbled 4G offering, and a stupendous debt burden bring the company to its knees,” Moffett wrote, referring partly to Sprint’s commitment to pay Apple billions of dollars to purchase iPhones for its customers.
Moffett noted that Sprint’s debt maturities through 2013 are covered and that its debt due the next year is modest, according to Dow Jones Newswires.
“But thereafter the company faces a sustained multiyear barrage of large maturities that will need to be addressed,” the report quoted Moffett as writing.
A spokesman for Sprint declined to comment to Dow Jones Newswires on Moffett’s research note.
Overland Park, Kan.-based Sprint doesn’t appear to face any near-time financial crisis. In its fourth-quarter earnings on Feb. 8, Sprint said that it raised a significant amount of cash to support its “Network Vision deployment”, meet its debt obligations and working capital requirements over the next few years. Sprint’s Network Vision represents its plans to consolidate multiple network technologies into one network and deploy a 4G network.
The company last month also noted it had paid all its 2012 maturities and that its next debt payments were due in May 2013 ($300 million) and October 2013 ($1.5 billion). As of Dec. 31, 2011, Sprint had $6.7 billion in total liquidity, including $5.6 billion in cash, cash equivalents and short-term investments.
Analysts appear to be concerned about Sprint’s longer-term future and financial requirements. Unlike its profitable rivals AT&T and Verizon Wireless, Sprint has been losing billions of dollars. Sprint reported a 2011 net loss of $2.89 billion, reflecting a slight improvement compared to a 2010 loss of nearly $3.47 billion.
Moffett cut his rating on Sprint’s stock to “Underperform” from “Market Perform” and reduced his target price on the stock from $2.50 to $1.75.