How Did U.S. Wireless Stocks React To Brexit?

With the United Kingdom voting to end its membership in the European Union last week, the U.K and potentially the entire E.U. are facing significant economic uncertainty. This had broad repercussions in the U.S. stock markets as well, with the S&P 500 and the NASDAQ falling by about 3.6% and 4% respectively, in Friday’s trading. Interestingly, some U.S. wireless stocks – including T-Mobile (NASDAQ:TMUS) and Sprint  (NYSE:S) – which are viewed as largely defensive, U.S.- focused bets, also saw a selloff and actually fared worse than the broader U.S. indices. Below we take a look at the performance of U.S. carrier stocks following the news with some potential reasons for the movement.

Sprint Decline Likely Driven By Flight To Quality, Correction

Sprint’s stock declined by about 6% on Friday. Sprint is seen as a relatively risky bet, given its high financial leverage and continued losses. Many investors will move money into more stable stocks during times of uncertainty, and it is possible that this impacted Sprint. Additionally, Sprint’s stock had rallied by close to 20% over the last month, driven by developments at its parent company, and it’s possible that part of the decline was due to a correction. That said, there could be some positives as well. The Japanese yen strengthened against the U.S. dollar following the vote, which could make it cheaper for Softbank – Sprint’s parent company – to fund the company.

T-Mobile Likely Hurt By Deutsche Telekom Connection, Analyst Downgrade

T-Mobile also saw a sharp selloff, falling by close to 6%. T-Mobile’s parent company, Deutsche Telekom, is based in Germany and has significant exposure to telecom carriers across Europe, and a possibility of a slowdown in the region could hurt its growth. T-Mobile borrows funds from its parent on occasion (it recently took a loan of about $2 billion towards the on-going 600 MHz spectrum auction) and a weakening Euro could potentially impact further funding. Separately, T-Mobile stock also witnessed an analyst downgrade last week, citing higher competition and lower net adds during Q4’16.

AT&T, Verizon Remain Largely Flat 

AT&T (NYSE:T) and Verizon (NYSE:VZ) remained relatively flat, falling by just about 0.8% and 0.4%, respectively, performing significantly better than the broader U.S. and global markets. Both companies are viewed as defensive bets, given their large and high quality postpaid phone subscriber bases as well as their industry-leading churn rates. Moreover, unlike the smaller two carriers, they are not dependent on companies based overseas for backing. While AT&T does have an international arm, it is primarily exposed to Latin America and accounts for just about 5% of total revenue.

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