Clearwire Whacked as Citi Says Sell - Update

Knocking the wind out of the market’s enthusiasm for the new Sprint (S)/Clearwire (CLWR) WiMax deal, Citigroup’s Michael Rollins this morning dropped his rating on Clearwire to Sell from Hold, asserting that the stock trades as a “substantial premium” to fair value, which he puts at $13 a share, down from a previous estimate of $17.

Rollins says there are a host of challenges ahead for the new Clearwire, which will now be 51% owned by Sprint and which will include what was that company’s Xohm wireless broadband division:

• Coverage plan reaches less than half the U.S. population by 2010.
• Unclear path to dual-mode devices to leverage Sprint’s CDMA coverage.
• Underfunded business plan.
• Existing mobile broadband competition that will likely launch national footprint using LTE standard in 2010-2011 time frame.
• Business plan that may create channel conflict between joint venture partners.

Rollins maintains his Hold rating on Sprint with a price target of $10.

“Our revised valuation analysis [of Clearwire] reflects our concern that the combined Clearwire is not pursuing a substantially larger coverage opportunity, while spreading the equity over a larger share base,” Rollins writes.

Clearwire this morning is down $1.57, or 9.7%, to $14.65.

Update:The stock was also downgraded today by Pacific Crest’s Steve Clement, who now rates the stock Sector Perform. “Our investment thesis on CLWR has been that Clearwire’s spectrum assets were undervalued and that a catalyst would unleash their true value,” he writes. “The new WiMax deal effectively fulfills that thesis. As a result, we are downgrading CLWR to Sector Perform from Outperform.”

Comments

[zenalgorithm:]

CEO had a choke-hold on CLWR with his class A shares...his overwhelming voting power was singlehandedly scaring potential investors off. Interesting to see him supposedly give the power to Sprint now. Still underfunded though...

I use Clearwire as my ISP - great service.

2008 May 08 11:40 AM

[markdauvid:]

why is it that there are companies that when they say a company is doing well or poor investors listen like it came from the Bible. Shouldn't investors take this information with a grain of salt and do their own research. a companies fate now lies in the hands of a few individuals. how many troubled companies have there been that have gotten the good word and many people have lost their savings. Can these ratings people be trusted.

2008 May 09 01:41 PM