Shares of Sprint (NYSE: S) were up almost two percent in Tuesday’s pre-market after Macquarie upgraded the stock to Outperform from Neutral and put a $10.18 price target on the stock.
A key point for analyt Kevin Smithen’s upgrade is the likelihood that the Department of Justice and FCC will approve Sprint’s deal with T-Mobile.
The report states, “We now think the chances of regulatory approval are ~70% based on our analysis of the DOJ complaint against AT&T, and the emergence of Comcast (WiFi) as a provider of mobile wireless telecom services, as defined by the DOJ, which sharply reduces HHI and mkt. concentration concerns in top CMAs.”
The research report also lays out seven myths regarding the deal. These include: less competitiveness in urban markets, Sprint and T-Mobile are competing effectively in suburbs versus Verizon and AT&T and that Sprint and T-Mobile can afford to bid in the incentive auction.
Smithen’s bullishness is more clearly explained with the risk/reward scenario: “With 53% upside to $13.20 by end-’15 if a deal is approved vs. 17% downside to $7.25 if rejected, S shares are now the best risk/reward in US telecom.”
The raise in price target from $9.75 to $10.18 is the result of a DCF.
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