Last week we showed that Sprint Nextel Corp. (NYSE: S) was given tremendous upside from analysts. Now there is another huge analyst call, but one calling for downside that may attract the interest of short sellers. Bank of America/Merrill Lynch has reinstated coverage on Sprint’s common stock with an Underperform rating. To add insult to injury, the price target is down at $5.00 per share.

The report said, “We are reinstating Sprint at Underperform with a price objective of $5 based on our view that the company’s valuation relative to our understanding of New Sprint’s strategy is unsubstantiated. Just prior to the reports that Sprint was in talks with Softbank in September 2012, we rated Sprint Buy based on a 5.7x forward year valuation at the time. We are revising 13/14/15E EPS from ($0.83)/$0.32/$0.84 to ($0.77)/($0.17)/$0.34.”

The only good news in the report is that the Merrill Lynch report does at least say that Sprint now has an aggressive new owner with a successful record and willingness to inject new capital. The firm also believes that SoftBank is expected to negotiate savings on its existing contracts under new ownership as well.

Sprint shares are actually up by 3.1% at $6.65 in mid-Monday trading, which implies that Sprint’s “NewCo” shares have about 25% downside.

Last week’s upgrade was from Cowen & Co. and the firm raised the rating to Outperform with an $8 price target, and full details of that call are here.

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.