Sprint’s Stock Looks Expensive Compared To AT&T After Rising 93% In 2 Months!

by Trefis Team
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Trefis
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Sprint
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Telecom stocks have been badly impacted by the ongoing Coronavirus/oil price crisis, due to the slowdown in economic activity and shutdowns, which has led to a drop in consumer demand and spending. However, Sprint‘s (NYSE: S) stock is up by about 93% since early February (mainly due to its deal with T-Mobile), while its rival AT&T has seen its stock drop 20% over the same period. Sprint has fallen by about 6% since March 8th, as oil prices tumbled and U.S. coronavirus cases accelerated, while AT&T has declined by about 18%.

Our analysis Is Sprint Expensive Or Cheap After A 93.1% Move vs AT&T? compares the stock price performance and fundamentals of Sprint and AT&T over the last few years.

Reasons For Difference In Performance

  • Both companies have seen contrasting trends in revenues over the last few years, with Sprint’s revenue seeing a lot of volatility, with the annualized revenue growth rate for Sprint (-0.5%) being much lower than AT&T (6.5%) over the last 5 years.
  • Also, Sprint’s earnings have deteriorated compared to a marginal improvement in the case of AT&T. Due to losses, Sprint’s P/E ratio is negative, which is not comparable with AT&T.
  • However, a decline of only 5.6% in Sprint’s stock price from 8th March to 30th March 2020, compared to a drop of over 18% in AT&T’s stock during the same period, suggests that the effect of coronavirus is not entirely captured by Sprint’s stock price.
  • As all of Sprint’s revenues are contributed by telecom, the company’s stock should have seen a larger decline compared to AT&T, which enjoys better diversification, with it venturing into the streaming space as well.
  • Sprint’s merger deal with T-Mobile is expected to close on April 1, 2020. Sprint’s stock has not faced the brunt of coronavirus as the market is valuing Sprint closer to the deal value (over $9 per share) with TMUS, ever since the US District court judge approved the merger in February 2020.
  • Sprint Total Debt has increased from $29 billion to $35 billion between 2016 and 2019. In comparison, Total Debt for AT&T has risen from $124 billion to $163 billion during the same period.
  • Sprint’s debt-to-equity ratio of 1.4x was still much higher compared to AT&T’s 0.8x at the end of 2019. Additionally, AT&T’s cash from operations ($48.7 billion) was also higher than Sprint’s ($10.4 billion).

Conclusion

While the outlook for both companies remains tough, as consumer demand and spending is expected to remain low due to the current pandemic, at least until the time there is confirmation of containment of the virus, AT&T’s higher revenue growth (due to the launch of its streaming service HBO Max in May 2020), along with Sprint’s higher debt burden (long-term debt to equity of 1.4x vs about 0.8x for AT&T), and much lower cash from operations, puts AT&T in a much better position to tide over the crisis.

 

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