Just How Much Is Sprint Worth Without a Deal for T-Mobile?

Amid reports that SoftBank (SFTBY) could end talks on a merger of Sprint (S) , which is majority-owned by Softbank, and T-Mobile (TMUS) , shares of both telecoms dropped sharply Monday.

merger with T-Mobile has been baked into Sprint’s price for some time now, and the potential absence of a deal presents a quandary about just how much the telecom is worth on its own. Analysts’ price targets suggest that Sprint’s standalone value could be as much as 50% lower — or higher — than Monday’s price.

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Sprint shares dropped 8.5% on Monday to $6.39, and were down as low as $6.05, after reports in Japan’s Nikkei and CNBC suggested that SoftBank was about to end talks. The stock is down 23.5% for the year.

Meanwhile, T-Mobile fell 5.3% to $59.60 on Monday, but is still up 4.3% this year.

A merger of the telecoms would have been a non-starter under a Clinton White House, but President Trump’s election seemed to open the door for a merger. On Nov. 9, the day after Trump’s election, Sprint shares jumped more than 13% from $6.27 to $7.11. Sprint and T-Mobile did not immediately respond to requests for comment for this story.

A merger with T-Mobile would likely value Sprint at $7 to $8 per share, MoffettNathanson LLC analyst Craig Moffett suggested in a recent note. Absent a deal, however, he wrote that “Sprint would trade below $3 per share.”

BTIG LLC analyst Walt Piecyk currently has a $4 target on Sprint, based on 7.5 times projected 2019 cash Ebitda.

Without a sale to T-Mobile, he suggested, investors could place a lower multiple to Sprint’s stock. At seven times projected 2019 Ebitda, he noted, Sprint would fall to $3.25, while at a multiple of 6 it could be worth a mere $1.65 per share.

T-Mobile CEO John Legere (left), Sprint CEO Marcelo Claure (right).

Towards the higher end of the spectrum, CFRA analyst Angelo Zino has a 12-month price target of $9 per share for Sprint, or 5.9 times fiscal year 2019 Ebitda.

“The $9 target price assumes our belief that this will remain a favorable M&A environment for the overall telecom industry,” he said.

Zino’s target price does not specifically factor in a deal with T-Mobile, but does consider that Sprint could have other options if a deal with T-Mobile falls apart. The carrier could strike a deal with Comcast (CMCSA) or Charter Communications (CHTR) , for example.

“We’ve seen a much more stable pricing environment and less promotional efforts than we’ve seen in recent years,” Zino added. The round of promotions for Apple Inc’s (AAPL) coveted iPhone X, which started pre-orders on Friday, have been underwhelming.

“A big reason for [fewer phone promotions] is likely because we’ve had T-Mobile and Sprint potentially working on a deal,” he added. “Do these carriers get more aggressive, which is a possibility? That offers downside to some of the estimates.”

Meanwhile, Cowen & Co. analyst Colby Synesael puts a $6 stand-alone valuation on Sprint, using a multiple of 7.5 times 2018 cash Ebitda and a 9.5% weighted average cost of capital, among other factors.

After riding the M&A roller coaster for nearly a year, it’s worth noting that Sprint shares are at about the same level as before Trump’s election, when a merger with T-Mobile seemed like a long shot.

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