Sprint slumping after analyst stirs up bankruptcy fear

Company's shares were down about 4.5 percent yesterday and are dipping in early trading so far today.

Sprint isn't without its troubles.
Sprint isn't without its troubles. Marguerite Reardon/CNET

Sprint's shares don't usually see much activity, but in the last few days, investors have been increasingly likely to take their cash elsewhere.

The company's stock yesterday was down about 4.5 percent, closing the day at $2.76. As of this writing, the shares have given up nearly 2 percent, dropping 5 cents to $2.71.

The decline is due to an analyst report released yesterday by Bernstein's Craig Moffet, who said Sprint could potentially find itself in deep trouble in the coming years. Sprint's trouble could become so bad, Moffet argued, that it could potentially push the company toward bankruptcy.

As one might expect, investors heard talk of bankruptcy and started to back out of the shares yesterday and today. However, Moffet made it very clear that he didn't necessarily believe Sprint will go bankrupt, adding that he and his fellow analysts "are merely acknowledging that it is a very legitimate risk."

The issue, Moffet says, is Sprint's relationship with Apple. His argument: a next-generation iPhone that could launch later this year "will likely be badly disadvantaged on Sprint's network, impairing sales when Sprint is subject to a punishing take-or-pay deal with Apple." In other words, the company must offer the iPhone and potentially swallow boatloads in losses if the device doesn't prove successful on its network.

In addition, Moffet believes Sprint will have difficulty establishing a "competitive LTE Network," due mainly to the little amount of spectrum it has to match Verizon and AT&T. Combine that with a massive amount of debt the company will be faced with starting in 2015, and Moffet thinks it's a recipe for disaster.

Sprint isn't unaware of those challenges. The company clearly wants to match AT&T and Verizon when appealing to iPhone customers, going so far in November as to bolster its network and improve data speeds . And although Sprint likely won't be able to match the 250 million potential customers who will be covered with Verizon's LTE service by year's end, Sprint has invested heavily in Clearwire in the hopes of ramping up LTE service in the coming years.

Still, Sprint finds itself far behind its chief competitors in the U.S. mobile market. And judging by its stock performance over the last year--shares are down 46 percent--its investors know that very well.

 

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