NEW YORK-Merger prospects tend to have a significant impact on a company’s share price, although the degree of that influence can be difficult to precisely identify.
The second-largest domestic personal communications services carrier, VoiceStream Wireless Corp., saw its stock price rise by less than $5, to $123.06, between early January and early August. That modest appreciation seems out of sync with the announcement of Deutsche Telekom AG’s intentions to buy the company for a record-setting $22,000 per customer.
One might argue the investment community is more miserly in its reward for what it considers glad tidings and more generous in meting out punishment for what it deems bad news.
A contrast that might support this hypothesis is the recent stock performance of the nation’s largest PCS player, the Sprint PCS Group of Sprint Corp. The Sprint parent company, whose planned merger with WorldCom Inc. wound up as a non-starter, experienced a drop of nearly $40 per share, to $55.91, during the first seven months of this year.
In late July, Tom Lee, a telecommunications analyst for Chase Bank Hambrecht & Quist, reiterated his buy rating on the company. However, he lowered his 12-month share price target to $84 from $88 “to reflect the loss of the premium from the WorldCom merger.”
At about the same time, Lehman Brothers Inc. downgraded its recommendation to neutral from buy, and ABN AMRO Inc. to hold from outperform. However, as of Aug. 11, there were 11 brokerage firms recommending Sprint Corp. (PCS Group) stock as a strong buy and an equal number as a moderate buy, while four had assigned a hold rating. Overall, these numbers stack up about the same as they did three months earlier.
Powertel Inc., in which Finnish carrier Sonera holds an equity stake, has seen its early August share price hold closely to its early January level.
This is so despite the fact that its earnings per share dropped significantly at the end of the second quarter when compared with the same period a year earlier.
The EPS decline “reflects new subscriber growth, and we give this stock an `outperform’ rating,” said Rankrishna Kasargod, a wireless analyst for Morgan Keegan and Co. Inc.
Snapshots, even those taken in sequence for comparison, can also be misleading. The stock of Sprint affiliate AirGate PCS, for example, closed at $51.75 on Jan. 5 and at $52.63 on Aug. 2. However, the 52-week trading range for the company’s stock between Aug. 14, 1999, and Aug. 14, 2000, was $23 to $114.50. Yet as of Aug. 11, only two brokerage firms had assigned a strong buy recommendation to the company’s stock, while four had accorded it a moderate buy ranking.
Triton PCS Holdings Inc., the first AT&T Wireless Services Inc. affiliate, experienced a share price rise of nearly $8, to $49, between early January and early August. It enjoys a strong buy recommendation from five brokerage firms, two more than three months ago, and a moderate buy rating from two, the same number as in May.
Leap Wireless International Inc., whose marketing strategy promotes PCS as a landline replacement for all local calls, experienced a slight decline in share price over the first seven months of 2000. That is so despite the fact that the new carrier announced an expanded vendor financing agreement with Lucent Technologies Inc. earlier this summer.
Of the six investment banks whose analysts follow the stock, an equal number have accorded Leap’s stock strong buy and moderate buy recommendations.
