Sprint Short Squeeze Could Be Short-Lived

Despite today's pop, resistance still looms for Sprint stock

Feb 2, 2018 at 10:24 AM
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Sprint Corp (NYSE:S) is set to end the week on a high note, with the stock up 4.4% to trade at $5.32 on the heels of a well-received earnings report. The wireless carrier reported fiscal third-quarter earnings of $7.16 billion, or $1.79 per share, on net operating revenue of $8.24 billion. On an adjusted basis, Sprint earned 3 cents per share. By contrast, analysts were bracing for a quarterly loss of 4 cents per share on $8.15 billion in revenue.

Adding to the bullish momentum, Sprint upped its fiscal 2017 guidance for operating income and free cash flow. The company is predicting operating income of $2.5 billion to $2.7 billion, well above its previous guidance of $2.1 billion to $2.5 billion; meanwhile, free cash flow is now expected to weigh in between $500 million and $700 million. Previously, Sprint had expected to break even.

Despite today's rally, though, S remains in dire straits on the charts. The stock is down about 37% year-over-year, and is pinned below familiar resistance at its 20-day and 50-day moving averages. The latter trendline hasn't been surmounted on a daily closing basis since late September.

Given the equity's bleak price action, it's no surprise to find quite a bit of pessimism priced into S shares. Short interest ramped up by 15.7% in the most recent reporting period, and now accounts for 16.8% of the stock's float -- or 5.9 times Sprint's average daily trading volume.

We could be seeing some of the weaker bearish hands hit the exits following the earnings beat, but unless S can snap out of its longer-term slump, many of these short sellers are likely to remain firmly entrenched. In the same vein, 18 out of 19 analyst call Sprint a "hold" or "sell," but there's been not one upgrade or price-target hike as of yet in response to the upwardly revised forecast.

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