Clearwire Trading Near the Bottom

Clearwire/Sprint

Clearwire Corp. (NASDAQ:CLWR) shares have taken a beating these past three months, falling 36% and now trading just 10% from its 52-week low.  The question is will Clearwire stay afloat in 2011 and if so, when is the time to buy?

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CO. Current Price Price Target % Change
CLWR  $            5.16  $          7.00 35.7%
CLWR  $            5.16  $          8.00 55.0%
 Average  22.7%

Clearwire (CLWR) shares are doing their best to stay above $5, today they closed up 1.5% at $5.16.  If you can remember back in 2007 when 4G and everything Clearwire was going to rule the world, its shares traded above $24, since that time the stock has fallen 79%

This month Citadel Securities downgraded Clearwire (CLWR) to an 'Add' rating from its previous rating of 'Strong Buy' and lowered their price target on the company by $2 to $8. The analysts that are daring enough to cover Clearwire have a $7 or $8 price target, they seem to have faith that the stock could rip an average of 23% higher in the coming 12 months.

More analyst take on Clearwire Corp:

05-Nov-10 Downgrade RBC Capital Mkts Outperform → Sector Perform $9 → $7
05-Nov-10 Downgrade McAdams Wright Ragen Buy → Hold
05-Nov-10 Downgrade Kaufman Bros Buy → Hold $8.50 → $7

The million dollar question -- how long can Clearwire continue to function as company? 

Sprint Nextel curbs potential risk in case Clearwire hits trouble (Kansas City Business Journal)
Sprint Nextel Corp. said it has taken steps to reduce its potential financial vulnerability if 4G partner Clearwire Corp. were to fail. But Sprint doesn’t plan to buy the company, in which it is majority owner.

Sprint (NYSE: S) issued a statement Dec 13th congratulating Clearwire (CLWR) on securing $1.3 billion in third-party financing to continue building its nationwide WiMAX wireless broadband network. Sprint resells Clearwire’s fourth-generation service under the Sprint brand.

Sprint said the financing “demonstrates (Clearwire’s) strength as a wholesale provider of 4G network service to Sprint.” But Sprint, which owns 54% of Clearwire, still is concerned that in the event Clearwire went into default on its debt agreements, it could be considered a Sprint subsidiary — possibly forcing Sprint into default.

In its statement, Sprint said it has amended an equity holders’ agreement among itself, Clearwire and other Clearwire shareholders that allows Sprint at any time to surrender enough voting securities to take itself below the 50% level. It added that though such a move would reduce its voting responsibility with Clearwire, “Sprint’s economic interest in Clearwire would not be affected.”

In fact, Sprint is considering whether to increase that economic interest. According to the terms of the third-party financing, Sprint has the option of acquiring a pro rata share of notes that can be exchanged for cash or common shares, which it could use to prevent the dilution of its share of Clearwire.

“No decision on whether to exercise its pre-emptive rights has been made by Sprint,” the company said. “Sprint continues to hold discussions with Clearwire regarding further investment in the company but has no plans at present to acquire Clearwire.”

Bottom line: Clearwire (CLWR) needs cash and its a leap of faith if you believe the analysts $7 or $8 price target.  The stock is tempting to buy as it trades just over $5 but until the numbers improve, its a real risk for would-be investors hoping for a great return.

Disclaimer: No positions in any of the securities mentioned in this publication.

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