JPMorgan Comments on AT & T and Sprint

T (AT&T) – M. McCormack takeaways on T acquisition of CYCL; improves rural presence, enhances Puerto Rico assets. AT&T announced an agreement to purchase Centennial Communications for $944M in cash on Friday. This implies $8.50 for each CYCL share, or a 127% premium to the company's close at $3.84. The purchase price implies a 7.0x EV/EBITDA multiple based on EBITDA of $405M, the midpoint of CYCL's guidance for fiscal year 2009 (CYCL's fiscal year ends in May 2009). We believe the premium is rich relative to CYCL's current 5.7x multiple and relative to other wireless peers, particularly given the current market environment. AT&T is Centennial's largest roaming partner in the United States, and as a result will likely see synergies from taking ownership of CYCL's 850 MHz spectrum and rural market presence. However, the company does face integration challenges, given that CYCL operates a CDMA network.

S (Sprint) – M. McCormack comments on the Q. Sprint beat our top-line estimates on better ARPU, but missed on profitability. In addition, subscriber trends and guidance for 4Q08 do not signal near-term improvement. As a result, we expect Street consensus to be down meaningfully. We continue to recommend investors avoid new investment in Sprint shares, given our expectations for weak fundamentals. We are establishing a $4.00 December 2009 price target, based on our DCF analysis.