UBS: Sprint Rebound 'Will Take Longer And Cost More'

UBS lowered its price target on Sprint (NYSE:S) and warned that Q4 pricing discounts and aggressive promotions during the holiday shopping season likely will drag down margins for wireless phone companies.

“The Sprint turnaround will take longer and cost more than is currently baked into (analysts’) expectations,” said UBS analyst John Hodulik, who lowered his price target on Sprint to 5 from 6.

“The company’s financial needs are larger than we had expected, despite a cut in capital spending expectations that suggest the company is having to make trade-offs between stabilizing the subscriber base and closing the network gap with its competitors,” Hodulik added in a report.

Sprint’s stock plunged Nov. 4 after it reported a wider-than-expected fiscal Q2 loss and continued to bleed wireless subscribers. Japan-based Softbank owns 80% of Sprint.

Apple‘s (NASDAQ:AAPL) iPhone 6, launched in late September, is expected to have a bigger impact on wireless firms’ December quarter results than Q3.

“With the seasonal promotions and a big iPhone 6-driven upgrade cycle in Q4, we have lowered estimates for Sprint and T-Mobile US (NYSE:TMUS),” Hodulik said.

The UBS analyst reduced his estimates for AT&T (NYSE:T) and Verizon Communications (NYSE:VZ) last month, after they reported Q3 earnings.

Sprint has been losing “postpaid” subscribers, those billed monthly, since 2007.

“Sprint’s willingness to sacrifice margin to return to growth could be the next leg down for the industry. While Sprint is on pace to donate 2.1 million subscribers in 2014 (after losing 2.8 million last year), management’s attempts to close this gap through network investments and a simpler pricing structure pave the way for a tough 2015 for the other national carriers,” Hodulik added.