Monday was another good day for the market with the S&P 500 climbing to within 10% of its historic closing high thanks in part to an announcement that Apple (NASDAQ:AAPL) will pay a $10 billion annual dividend plus buy back stock while in other news, Sprint Nextel (NYSE:S), the third largest wireless telecommunications network in the US, was downgraded and could be inching towards bankruptcy - thanks in part to a "punishing" contract for the Apple iPhone.
Apple (AAPL) to Pay a Dividend
On Monday morning, Apple (AAPL) announced that it would pay a quarterly dividend of $2.65 a share beginning in its fiscal fourth quarter (starting July 1) plus begin $10 billion share buyback program starting September 30. Apple (AAPL) intends to spend about $45 billion over three years on the plan and only use cash generated by its USA sales. However and as the New York Times pointed out, Apple (AAPL) is generating so much cash (at least $1 billion a week during the last holiday season alone) that the move won't put much of a dent in Apple's fairly deep coffers. Either way, investors liked what they heard and Apple (AAPL) rose $15.53 or 2.65% to close at $601.10 - above the psychologically important $600 mark.
We should point out that besides correctly predicting that Apple (AAPL) would hit the $600 level on last Thursday, we also have a blog post listing the top 10 reasons Apple (AAPL) is overvalued. However, the latest move by Apple (AAPL) will tend to complicate an argument that the stock is overvalued but nevertheless, investors with a long-term horizon need to continue to be wary.
Will Sprint Nextel (S) Go Bankrupt?
Meanwhile, Sprint Nextel (S) sank 4.5% to $2.65 after Sanford Bernstein analyst Craig Moffett downgraded the stock to underperform and said that the "risk is rising" that the third largest wireless carrier in the US may need to file for bankruptcy. Specifically, Moffett drew up two scenarios outlined in the Wall Street Journal's MarketBeat column for Sprint Nextel (S) - one that's positive and one that is negative. Under the positive scenario, Sprint Nextel (S) will be able to complete a successful network upgrade, stabilize Clearwire and "delivers a compelling 4G product."
However and under the negative scenario, Sprint Nextel (S) fumbles its 4G offering while its massive debt burden eventually brings the company to its knees. Moffet noted that Sprint Nextel (S) has debt maturities of $1.8 billion through the end of 2013 covered with cash on hand plus there is another $1.4 billion maturing in 2014. After that, the company will face a multi-year barrage of large maturities plus Clearwire has $3.0 billion in debt that will mature in 2015 just when Sprint has $2.6 billion coming due.
Moreover, Sprint Nextel (S) also has a bloated contract with Apple (AAPL) that could hamstring it from further diversification. Specifically and according to Bloomberg BusinessWeek, Sprint's CEO committed the company to a $15.5 billion four-year "punishing take-or-pay deal" (in Moffet's words) with Apple (AAPL) to sell 25 million to 30 million iPhones in order to stay competitive and stem the loss of customers to AT&T (NYSE:T) and Verizon Communications (NYSE:VZ). Sprint Nextel (S) sold 1.8 million iPhones last quarter - sales that trailed behind both AT&T (T) and Verizon Communications (VZ).
Nevertheless, Moffett did make it clear that he does not believe a Sprint Nextel (S) bankruptcy is pending but he believes it's a legitimate risk to be concerned about in the coming years and he cut his Sprint stock prediction to $1.75.
Apple (AAPL) was rising about 0.6% in after hours trading while Sprint Nextel (S) was falling by another 1%. Nevertheless and before the market opens tomorrow, traders might want to check their Next Candle stock forecasts for both Apple (AAPL) and Sprint Nextel (S) as the later could move in either direction while the former appears to be on a solid trajectory to head higher - at least for the time being.
NOTE: THIS PIECE WAS JUST POSTED ON OUR BLOG AT www.nextcandle.com/blog/2012/03/stock-ma...-sprint