Sprint shares worth $21 each in spectrum value alone: Wells Fargo

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Shares of Sprint are worth $21 each in spectrum value alone based on the carrier’s recent spectrum-leaseback deal, Wells Fargo Securities said this morning.

The nation’s fourth-largest mobile network operator announced this week that it will place 14 percent of its spectrum into three vehicles that will then lease the airwaves back to Sprint under a long-term agreement. The carrier said the spectrum has been estimated by a third party to have a value of $16.4 billion, and Sprint will initially look to raise $3.5 billion but could raise as much as $7 billion under the structure.

The move essentially enables the carrier to use its airwaves as collateral, increasing its liquidity to help meet debt obligations over the next 18 months.

Several analysts were quick to note the high valuation of Sprint’s spectrum, and BTIG Research observed that the deal appears to value Clearwire airwaves at six times the price Sprint paid to acquire Clearwire in 2015. Jennifer Fritzsche of Wells Fargo said the announcement finally provides a “market value” on Sprint’s spectrum.

“Based on Tuesday’s announcement, the simple math would dictate that $16.4 billion is the value placed on 14 percent of Sprint’s total spectrum (or $1.85/MHz-POP),” Fritzsche wrote in a research note. “Back-of-the-envelope math would suggest the total value is worth +$117B ($16.4 / 14%). Sprint has included 10 MHz of 1.9 GHz spectrum in 54 markets (13 of the 20 largest), and 20 MHz of contiguous 2.5 GHz spectrum in select markets like NYC, Los Angeles and San Francisco. Applying this valuation to Sprint’s total spectrum value alone, we estimate Sprint shares to be worth $21/share in spectrum value alone, after deducting $32 billion in net debt.”

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Fritzsche placed a valuation range on Sprint’s stock at $8 to $10 a share; shares were trading at $6.93 late Friday morning. “We view Sprint’s outlined path for Network Vision very positively,” she wrote.

But other analysts see a significant disconnect between the value of Sprint’s spectrum and the carrier’s long-term prospects. Sprint posted 173,000 net postpaid phone additions in the second quarter, but it also recorded a $302 million net loss, significantly larger than the $20 million loss it posted in the second quarter of 2015. And analysts continue to question whether Sprint can continue to add customers even as it significantly cuts back on its network investments.

Whether Sprint can leverage its spectrum and other assets sufficiently to regain its financial footing is still far from clear.

“The bet is clearly on getting the network quality on par, and improving subscriber trends in hopes of buying back these assets in the future, but with no end in sight to competitive pressures, we remain highly skeptical, and maintain our Underperform rating on Sprint shares,” Jefferies analysts wrote earlier this week.