No matter which way you look at it, investors in Sprint (S) are getting hammered.
Sprint's stock is down 38% this year, as of Tuesday's close. The price of several of its debt issues have fallen steeply and are trading at or below $70.
Finally, investors in iShares High Yield Corporate Bond ETF (HYG) are getting unduly hit as Sprint's debt is one of the largest weightings in the index, standing at 2.8% when also including debt from Sprint's parent company Softbank Group, according to data compiled by Morningstar. The HYG is down 15% over the last year and it has a 25% weighting to communications. Although exposure to energy names has largely been blamed for the decline in high-yield funds, HYG's exposure to energy is only 11%.
Sprint's financial picture is indeed worrisome and Real Money is keeping a close eye on it. Sprint has more than $32 billion in net long-term debt, much of which has been trading down sharply amid worries about the company's liquidity as well as its standing against competitors, such as Verizon (VZ). As of its Sept. 30 filing, the company's current ratio is 0.76, which suggests the company could have difficulty meeting near-term obligations.
Sprint's financial challenges are not lost on management. During a December conference hosted by UBS, Sprint CFO Tarek Robbiati opened his remarks by saying that the company planned to eliminate $2 billion in costs during its 2016 fiscal year.
"In terms of the priorities it is pretty simple, it is cost cuts, cost cuts and, again, cost cuts," Robbiati said. "That is what we have to focus on. It is fundamental for us to turn the operating performance trajectory of the business and take cost out."
Less than two weeks after the conference, Sprint announced via a filing with the Securities & Exchange Commission its plan to reduce headcount in an effort to "improve operational efficiencies and reduce costs."
Other cost-cutting measures have been reported, though not confirmed, by Sprint.
Last week, Re/code reported that Sprint had finalized plans to reduce network costs by relying on government-owned tower space instead of its existing leased tower space from Crown Castle (CCI) and American Tower (AMT). If adopted, the plan could lead to $1 billion in savings for Sprint, Re/code reported. Shares of both companies traded down on the report.
The report was met with skepticism from analysts at BTIG and Wells Fargo Securities who noted that Sprint still had at least five years on its contracts with both companies.
Furthermore, Jennifer Fritzsche of Wells Fargo wrote in a note released on Friday that, if true, network overhauls could come at the expense of user experience.
"While cost savings would be a significant positive for the story, network focus and customer experience cannot suffer in the process," Fritzsche wrote.