Sprint PCS (NYSE: PCS) surged 8 percent after Lehman Bros. said on Monday that it upgraded the wireless phone operator to "buy" from "neutral."
Shares were up 2.25 to 30.25 Monday morning. The wireless branch is a spin-off of Sprint Corp. (NYSE: FON), which saw shares fall after it warned that third quarter earnings will be lower than expected.
Lehman Brothers said in a research note that the company's stock "could double over the next year." Lehman cut the company's price target by $1 to $58 after it said its customer churn -- meaning customers that stop using the service -- was higher than expected during the third quarter. The announcement sparked a sell off in the stock.
"The market sell-off in PCS exaggerates the fundamental issues surrounding third quarter churn," according to Lehman's research note. "We are upgrading PCS to a 1-Buy and think the stock could double over the next year."
Fears of increased competition from Verizon (NYSE VZ), which plans to give users a new phone every year to decrease churn rate, have created fear in the market, but it is an overreaction, the report said. In another release Monday, Sprint PCS said it will deliver wireless video applications. This agreement resulted from the market research obtained from a trial in the United States, conducted earlier this year by Sprint PCS and PacketVideo.
The new services, supported by PacketVideo's wireless media technology, will be transmitted over Sprint PCS' digital PCS nationwide network and will be accessible using media-enabled personal digital assistants and Internet-ready Sprint PCS phones.
Under the terms of the alliance, the companies have agreed to collaborate with handset and infrastructure vendors and to explore additional consumer offerings, including 3G (third generation) applications over Sprint's high-speed wireless network.
Reuters contributed to this report.