Distressed about markedly slower growth at Sprint Corp.'s wireless unit, investors pounded wireless stocks Friday, sending several to 52-week lows as the overall market staggered to the end of another losing week.
Shares that track Sprint's mobile-telephone PCS Group plunged 27%, while shares tracking its long-distance business sank 18%. Also falling were shares of AT&T Corp., AT&T Wireless Services Inc., Verizon Communications Inc., SBC Communications Inc. and BellSouth Corp.
"Investors tend to take a machine gun and shoot the entire sector, even though all the warnings came from Sprint," said stock analyst F. Drake Johnstone of Davenport & Co. in Richmond, Va.
They were spurred in part by analysts. Merrill Lynch & Co., J.P. Morgan Chase & Co. and at least three other brokerages lowered ratings on the wireless industry. Growth rates of more than 20% in recent years probably will fall to as low as 10% this year amid sagging demand and an overall telecommunications market reeling from oversupply and heavy debt loads.
Prudential Securities Inc. is a bit more bullish, predicting that the number of wireless customers in the United States will grow this year by 14%--the slowest rate since the industry began in 1985.
"There's been no clear bottom," said Donna Jaegers, an analyst at Invesco Funds Group Inc. But "we're closer to the bottom than we were before."
The pummeling came after Sprint said after the markets closed Thursday that its once fast-growing PCS business would add 10% to 15% fewer subscribers this year, while its long-distance revenue would drop at a mid-single-digit rate, instead of the low-single-digit rate it had forecast.
"Sprint has been the wireless sweetheart, the darling, through this whole telecom scene," said Matthew Crakes at Merrill Lynch Global Securities in New York.
But the Overland Park, Kan., company has been packing in new wireless subscribers at the low end of the market, he said, and those customers are less loyal and move more quickly for better deals. And, he said, Sprint has had some problems collecting on billings.
The PCS unit's heavy dependence on low-income customers was one reason why Morgan Stanley Dean Witter & Co. analyst Luiz Carvalho downgraded the shares to "equal-weight / cautious" from "overweight / cautious."
"The long and short of it is that Sprint missed its numbers big time," said stock analyst Todd Bernier of Morningstar Inc. in Chicago. "That's a huge disappointment, because it was such a big pacesetter for the industry."
Investors, he fears, are incorrectly extrapolating from Sprint's news that all wireless companies are in trouble. The Big Three-- Verizon, AT&T Wireless and Cingular, a joint venture of BellSouth and SBC--are strong enough and are generating enough cash flow to pay their debts, analysts say.
But sales at Sprint PCS and Nextel Communications Inc. aren't generating enough cash to service large debt loads, Johnstone said. "PCS has $22 billion in debt, and more than $1 billion is due each year," he said.
Merrill Lynch cut the U.S. wireless industry to "reduce / sell," citing concern over price competition and slowing subscriber growth. J.P. Morgan reduced its recommendation for the nation's wireless industry to "market perform" from long-term "buy."
Those downgrades are fine with investors and analysts such as Crakes. "There's still some decent growth in the industry," he said. "At these [price] levels, the stocks are pretty attractive. I wouldn't sell, unless you think a company is going bankrupt."
He noted that the industry has started to consolidate, and that will drive up stock prices.
But Friday, Sprint's wireless shares lost $1.59 to close at $4.40, after trading as low as $3.55 on the New York Stock Exchange. Its long-distance shares lost $2.54 to close at $11.75, after falling as low as $10 a share. Both stocks closed at new 52-week lows.
AT&T Wireless closed down 60 cents at $5.75, a 52-week low, and AT&T dropped 20 cents to $10.18, after hitting a 52-week low during the trading day. Bell South lost 79 cents to close at $31.66, and its Cingular partner, SBC, fell 42 cents to $32.23. Verizon stock moved the least, losing 4 cents to close at $41.31. All trade on the NYSE.
Nextel, the only gainer in the group, rose 33 cents to $4.48 on Nasdaq.
Bloomberg News was used in compiling this report.