Shares of Sprint (S) are sliding after Pacific Crest analyst Michael Bowen downgraded Sprint to Underweight, a rating equivalent to "sell." The analyst recommended investors to "take cover" into the company's fourth quarter earnings.
TACTICAL SHORT INTO EARNINGS: Pacific Crest's Bowen downgraded Sprint to Underweight from Sector Weight ahead of earnings, expecting near to medium-term downside for the stock to slide to $2.50 to $2.75. The analyst is reducing his estimates following Sprint's CFO's commentary that "we will see a blip in churn this quarter," T-Mobile's (TMUS) commentary that the impact of Sprint's 50%-off promotion is fading, and his belief that the company is tightening credit standards. Bowen called the stock a "tactical short" into earnings, as the company may report worse than expected quarterly net postpaid additions and churn. The analyst was expecting continued subscriber momentum, but Sprint's lack of competitive tools besides price indicate "fundamental" issues. Bowen advised investors not to take Sprint's 2016 guidance at face value, noting that company has a long turnaround ahead of it. The analyst also expects Sprint to take proceeds from its leasing structure to pay down debt.
PRICE ACTION: In morning trading, Sprint shares slid almost 4% to $3.36.
OTHERS TO WATCH: Sprint's large cap competitors Verizon (VZ) and AT&T (T) slid fractionally in early trading, while T-Mobile's stock was fractionally higher. Verizon shares may have been pressured by news that CWA and IBEW leaders have called a strike as of 6 am ET and Verizon has activated its business continuity plans.
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