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Why Sprint Shares Plunged 14% Despite Solid Results

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Sprint CEO Marcelo ClaurePhoto by Aaron Davidson—Getty Images

How much merger speculation is swirling around Sprint, the indebted, fourth-ranked wireless carrier? An awful lot, if the stock market’s strong reaction to the company’s denials of any immediate sale or acquisition is to be believed.

After Sprint CEO Marcleo Claure talked down some recent rumors, Sprint shares dropped almost 14%.

The stock reaction didn’t start when Sprint reported quarterly results on Wednesday morning. The numbers actually looked okay.

The carrier’s operating revenue increased 6% to $8.5 billion, more than the $7.9 billion analysts had forecast. An adjusted loss of 7 cents per share was slightly worse than the 4-cent loss analysts were looking for. And Sprint added 42,000 net regular monthly phone customers, a little better than most expected.

After the results came out, Sprint shares rose 1% in premarket trading. And then CEO Marcelo Claure started talking, first with analysts and then with reporters, about the company’s current merger and acquisition outlook.

First up, Claure shot down speculation raised by unnamed sources in a Bloomberg article last month that Sprint may be willing to sell or spin off some of its rich bounty of airwave licenses.

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“We plan to use every piece of spectrum that we have as I believe this is our competitive advantage,” Claure told reporters on Wednesday. “At this point in time, we have no intention of parting away from any piece of spectrum anywhere that we have in the United States.”

The other big rumor that’s been widely circulated revolves around Sprint merging with T-Mobile, the third-ranked wireless carrier, to create a more profitable, larger player while also possibly removing the incentive for the fierce price wars that have consumed the industry this year. Some expected talks might begin almost immediately after the year-long ban on dealmaking imposed by federal spectrum auction rules expired on April 27.

But Claure didn’t sound like a man in a hurry to cut a deal with T-Mobile, or anyone else. With financial results improving and up to $10 billion in cash and borrowing capacity available to provide liquidity now, Claure said Sprint could be “very patient.”

“We’re in no hurry to jump into anything and we’re going to be very diligent in evaluating every opportunity,” he said.

Longtime industry analyst Craig Moffett noted that Sprint’s stock price might be in trouble if no deal materializes. The carrier’s latest results were “a little better” than previous quarters, but the company would still have a tough time over the long term if it can’t find a partner, Moffett wrote on Wednesday. He recommends selling the stock, which has a $4 price target and is currently trading at almost $8.

Shares of other companies that may be involved in deals with Sprint (S) also dropped on Wednesday. T-Mobile (TMUS) lost 3%, Dish Network (DISH) fell 4%, and United States Cellular (USM) lost 5%.