S&P has become the fourth firm to downgrade Sprint (S -4.2%) over the last two days, cutting shares to Sell. Shares are off 7% over the first two trading days of the year, but still up 22% since the first report of a possible T-Mobile USA bid arrived.
Stifel's Chris King, who downgraded Sprint to Sell this morning, joins many others in expressing skepticism a Sprint/T-Mobile deal will be approved by regulators, given the DOJ's preference to have four nationwide carriers and the DOJ/FCC's likely wish to have T-Mobile remain an independent "maverick" carrier.
King also argues Sprint "remains at an operational disadvantage to AT&T/Verizon, and thinks the company "will continue to struggle to add a significant number of postpaid subscribers in the near-term."
Moreover, he believes Sprint's current valuation - 11.1x 2014E EBITDA - "appears extended," even though he does expect margins to rise significantly over the next two years thanks to the shutdown of the Nextel iDEN network and Sprint's Network Vision project (aims to consolidate multiple networks and ramp 4G coverage).
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