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Sprint [S 2.14 -0.27 (-11.2%) ] shares fell 23 cents to $2.18 after
analysts cut their price targets for the stock and forecast free cash flow
losses. S&P gave Sprint debt a "watch negative" rating.
The company discussed a costly network upgrade plan at a conference Friday,
telling investors that it would need to tap capital markets, even before
accounting for big additional costs it expects from subsidizing sales of the
new Apple [AAPL 384.61 14.81 (+4%) ] iPhone.
UBS analyst John Hodulik estimated that Sprint would incur a free cash flow
loss of $2.5 billion over the next two years and worried how it would pay
for upcoming debts.
"The next two years will be a transition period for Sprint as it absorbs the
costs of the iPhone and rebuilds its network," said Hodulik, who cut his
price target for the stock to $2.75 from $4.
JPMorgan cut Sprint Nextel to "neutral" from "overweight" and said
management would have to rebuild confidence among investors.
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Sprint reported liquidity of $5.3 billion at the end of the second quarter,
including $4.3 billion in cash and $900 million of borrowing capacity under
its revolving credit facility.
Chief Financial Officer Joseph Euteneuer told investors Friday that the
company could reduce its cash balance, raise more capital or tap its
existing credit facility to help meet ballooning costs next year.
Hodulik questioned whether it would make sense for Sprint to pay today's
steep interest rates to refinance $2.3 billion of its debt that is due for
repayment in March.
But he said its alternatives — using a huge chunk of cash to pay off the
debt or using its credit facility — would not be attractive prospects
either.
"This would cut its cash reserve almost in half as it goes into a 12-month
period where we expect it to lose $2.5 billion in free cash flow over the
next two years," Hodulik said. "While the company could tap its credit
facility if required, this would be a bad day for shareholders."
These costs were only the beginning, he said.
"We stress that this level of scrutiny is required of the company's cash
flow even before we consider any cash needs for its 4G strategy beyond mid-
2014," Hodulik said.
Monday's share move followed a 20 percent drop in Sprint's share price
Friday. |
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