When it comes to the world of cellular telecom providers, Sprint Nextel Corporation (NYSE: S) is the weakling on the block. Despite its release of the iPhone for Sprint from Apple Inc. (NASDAQ: AAPL), there have been concerns that Sprint is overpaying and is now overleveraging on this move.
On the likely or near-certain need for new capital, Sprint Nextel has taken at least 4 downgrades today. Sprint was cut from “Buy” to “Hold” at the three firms of Deutsche Bank, Collins Stewart, and Kaufman Bros. Another downgrade was seen by J.P. Morgan from “Overweight” to “Neutral.”
Both AT&T Inc. (NYSE: T) and Verizon Communications Inc. (NYSE: VZ) have already gotten the jump on Sprint in the iPhone market. The talk is $20 billion as far as what the cost will be to Sprint. Last week the company came out and denied that Sprint was going to lose money on the product. CEO Dan Hesse said the iPhone customers would be profitable and would grow cash flow.
The problem is that Sprint now appears to need to raise capital. It has shortened the time its rapid capex and network transition will be. The expenses will exceed Sprint’s current capital base, and any new debt will only make a leveraged company an even more leveraged company.
Sprint shares are now down 6% at $2.26 and shares hit a multi-year low of $2.21.
JON C. OGG
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