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Sprint Falls as Analysts Reduce Ratings on Rising Spending

Sprint Falls as Analysts Reduce Ratings
At its Oct. 7 meeting, Sprint said it plans to increase spending to pay for a new wireless network and handsets. Photographer: David Paul Morris/Bloomberg

Sprint Nextel Corp. tumbled to its lowest since February 2009 as at least seven analysts cut their ratings on the stock after the carrier’s investor meeting, citing concerns that rising spending will hurt liquidity.

Sprint, based in Overland Park, Kansas, fell 7.9 percent to $2.22 at the close in New York. The shares have declined 48 percent this year.

At its Oct. 7 meeting, the third-largest U.S. mobile carrier said it plans to increase spending to pay for a new wireless network and handsets, and also said it will need to raise capital. “Liquidity concerns” will probably be an “overhang” for the stock, said Michael Nelson, an analyst at Mizuho Securities USA Inc. in New York.

“Management must demonstrate an ability to execute against its strategy before investors give the company the benefit of the doubt,” Nelson, who reduced his rating to “neutral” from “buy,” said in a note to clients today.

JPMorgan Chase & Co., Deutsche Bank AG, Collins Stewart, Kaufman Bros., Atlantic Equities and Raymond James also cut their recommendations.

Standard & Poor’s said it may reduce Sprint’s credit rating, citing the combination of increased spending, weak profitability, the need to take on debt and uncertainty around its Clearwire Corp. partnership. Sprint is rated BB-, three steps below investment grade, and has $19.8 billion in outstanding debt, more than half of which is due in the next five years, according to data compiled by Bloomberg.

Questions Raised

Sprint didn’t give sales or earnings forecasts at the Oct. 7 meeting, and didn’t say whether a relationship with network partner Clearwire will continue longer term. The projections Sprint provided didn’t include the impact of the Apple Inc. iPhone, which Sprint added to its device lineup this month to compete against larger rivals AT&T Inc. and Verizon Wireless.

After the meeting Oct. 7, Sprint fell 20 percent, the most in almost three years.

The meeting “raised more questions than answers,” Nelson said.

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