Following the formal completion of Softbank’s acquisition of Sprint Nextel (NYSE:S), onlookers have different opinions of what the deal might mean for stock prices. Softbank will now own 72 percent of Spring while also taking over Clearwire Corp. (NASDAQ:CLWR) — Sprint’s broadband wireless partner.
Deutsche Bank‘s Brett Feldman says the that the deal results in “the new king of spectrum with more bandwidth available for LTE than all of its national competitors combined.” He also gave Sprint/Clearwire a Buy rating and a $8 price target.
“We believe Sprint will grow EBITDA at least 3x faster than its peers over the next 3 years, even if we do not factor in merger synergies or improved revenue trends. NT trends will likely remain soft as Sprint focuses on its LTE build-out and merger integration. But, with over 30% potential upside in the stock, we believe investors should build positions now,” he said.
Feldmen says that Sprint is in position to have success in the evolution of LTE because the electromagnetic leases it has have the most spectrum of any carrier in the U.S. and are also highly desirable. Sprint’s high amount of high frequency spectrum holdings, which have historically been undesirable, may now be its strongest possession.
“As networks densify, we believe that higher frequency bands will be viewed as increasingly valuable specifically because they do not propagate too far thereby enabling carriers to place their sites closer together without creating interference,” Feldmen says. “This enables Sprint to deploy TDD LTE technology in these bands, as opposed to the more common FDD version. Unlike FDD, which is deployed in paired spectrum bands, TDD does not limit uplink and downlink signals to pre-allocated portions of a carrier’s spectrum.”
But while Feldman and Deutsche Bank are clearly excited about the possibilities of the Softbank/Sprint merger, others are not so sure. Citigroup’s Michael Rollins cut the stock from Neutral to Buy, despite raising the price target from $6.50 to $7.50. His biggest concern is Sprint’s net debt, which is approaching $29 billion because of substantial capital expenditures.
“We believe the level of net debt is meaningfully higher than what the market may be incorporating into the share price partly based on: 1) the change in merger terms that reallocated roughly $3 billion of cash proceeds to public investors, rather than representing a direct investment into Sprint; and
2) an accelerated capital spending program that is roughly $7 billion over our previously estimated capex forecasts for 2013 and 2014,” Rollins said.
The debate will continue, but consumers are sure to benefit from increased competition.