UBS upgraded Sprint (Fon Group) (FON ) to buy from reduce. Sprint announced it will recombine the Fon Group and Sprint PCS (PCS ) into a single stock.
UBS analyst John Hodulik says the FON upgrade is based on the company's recombination plan that does not put a premium valuation on PCS, and equitably allows FON shareholders to participate in the wireless segment and free cash flow (FCF) growth that significantly exceeds industry peers. He notes his comparable company analysis suggests that the combined company is undervalued from both relative and absolute perspectives.
Hodulik raised his $14 FON price target to $22. He maintains a buy rating on PCS, and cut his $13 target to $11. He expects Sprint will grow its revenue, EBITDA, EPS, and FCF at rates well in excess of its peers.