The future, for the next few months, is all about New Sprint stock. 55% of existing S stock will be bought for $7.30. That leaves 45% which will be converted (share for share) into New Sprint stock. And, 45% of S will be converted into a 30% ownership of the new company. There are only 2 variables to consider. One is, whether or not the deal with Softbank goes through. The other is, what is the value of New Sprint stock? The market has valued the deal for somewhere between $5.48 and $5.76. (These are the closing prices for S since the deal has been announced.)
For those who have read my posts, you know that I have been a big supporter of Sprint. I have been, through some trying times, a believer in Sprint since S was trading under $2.20. For now however, I believe there is only one way for S to trade higher. That would be for the market to evaluate New Sprint stock at a higher price. I believe, based on what has happened in the last few weeks and months, the market should evaluate the stock at a higher price. The market does not agree. The good news, about the deal, is that it limits the downside for S stock. If you check the prices of S options, puts and calls, you will see that the market believes that the future of S is somewhere between $5.50 and $6.00.
IT'S ALL ABOUT PERCEPTION
I really shouldn't be greedy. I own S at an average cost of $2.78. However, it would be nice to see it go up further....
I own shares of Sprint. It occured to me to buy February $5.50 puts (options) to protect my investment. Currently the cost would be about $.30 per share. One reason for choosing February is that I would have the opportunity to benefit from the 4th quarter earnings report in January. Another reason would be that if S remains stagnant between now and then, I could sell my stock in January and not pay capital gains until 2014.
My hope would be that these options expire worthless and that S is substantially higher next year than it is now. However, I feel that with the Softbank deal in place, the upside (and downside) is somewhat limited until the market evaluates "New Sprint" shares at a higher price. Of course, the main reason for doing this is in case the Softbank deal falls through.
A wise move (the put's). A lot can happen between now and February. With the election, fiscal cliff, and uncertain macro economic environment I think if anything Sprint will be stuck in a trading range in the low to high 5's.
My bias is to the low end (as it is for the market as a whole) so I am for the most part sitting on the sidelines awaiting the election and to see if there is any movement re: the fiscal cliff.
To be sure, I'd like to get back into Sprint once there is more clarity re: new structure, capitalization and most importantly strategy.
It should be interesting to see how S trades today. The market is going to open significantly down, the floor of the NYSE is closed, the market has had the weekend to digest the Sprint earnings, and there is a very large storm beginning to strike the east coast. To all those in its path, I wish you good luck and hope the storm is not as bad as predicted......
This is all still true. When the market starts evaluating "New Sprint" stock higher, then S will start rising again. I believe that S is undervalued, based on the Softbank deal, and will go higher from here.
Sentiment: Strong Buy
Well it looks like I am in the minority here but I sold and may get back in when and if there is a new stock issued.... S stock will be dead money for quite a while and until something breaks on the deal I will invest in other ventures..... good luck