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JP Morgan is out with high conviction on Sprint-Nextel (NYSE:S) saying the stock has fallen in the past week since the 2007 outlook was provided. The outlook was the latest in a string of disappointments and hesitant investors have asked what levels defined previous troughs.

S's 41% discount to group mirrors AT&T Wireless 2002 trough. JPM believes the stock has reached its valuation trough. At 5.1x EV/'07E EBITDA, S at a 43% discount to the wireless group. Similarly, ATandT Wireless troughed in 10/2002 at a 41% discount on EV/EBITDA to the group. AT&T Wireless previously was the largest trough discount. The firm looked at a total of 6 prior instances of troughs since 2002.

Historical analysis of 6 prior troughs shows wireless stocks have typically risen 111% 6 months after troughing. How do they know this is the trough? The current 43% EV/EBITDA discount on S is the largest ever seen since 2002.

Takeaway? Bad news is more than baked in. In their view, Sprint's current share price reflects the bad news. As investors may recall, AT&T Wireless continued to stumble after 2002 but the stock still managed to more than double by the end of 2003.

Bottom line, they are buying the stock here. They do not think the stock can fall further, even on additional disappointments.

Notablecalls: I think JPM's right! You gotta buy Sprint here. The valuation discount is way too big to be ignored. Think, there is just one big seller out there and once she is done S will bounce hard.

S 1-yr chart:

S chart

Source: Sprint Nextel: The Bad News Is More Than Baked In