Start Buying Sprint Due To Positive Future Growth

Sprint Nextel (S) provides a comprehensive range of communications services to its wide variety of users. Sprint Nextel is bringing the choice of mobility and connectivity to its 56 million users. Newsweek ranked Sprint No. 3 in its 2011 Green Rankings being among the greenest companies in the US and highest among all telecommunications company. Sprint Nextel Corporation started on 1899, in Overland Park, Kansas.

Competitive 4G LTE unveiling

Sprint is a well-known pioneer and innovative player in the mobile industry. Sprint launched its 4G LTE venture with Clearwire (CLWR) on July 15 in five cities including Atlanta, Dallas, Houston, San Antonio and Kansas City. Sprint is already offering five LTE-supported devices including HTC EVO™ 4G LTE, LG Viper 4G LTE, Samsung Galaxy Nexus, Samsung Galaxy S III and iPhone. Sprint is catching up with Verizon and AT&T’s LTE services. This backlog is due to Sprint’s decision for WiMAX as its 4G technology which has higher engineering and infrastructure requirements. Verizon currently offers LTE services in 304 cities, two-thirds of the U.S. population. AT&T currently offers LTE service in 41 cities. This massive upgrading is a result of Apple’s new iPhone this year. Sprint has 263,000 new postpaid accounts for Q1 2012 which is below the previous quarter’s 539,000. AT&T and Verizon failed to acquire the same level of postpaid subscribers so far in the year. Sprint recorded a total net addition of 1 million postpaid subscribers in a span of six years.

Pioneer provider of prepaid iPhones

Sprint will offer iPhone through its Virgin Mobile USA subsidiary. iPhone prepaid plans will start at $30 per month while unlimited data plans are for $50 per month. Sprint is currently the only mobile operator to continue unlimited data plans for iPhones while AT&T (T) and Verizon (V) are both trying to phase out unlimited data. AT&T’s cheapest iPhone offering starts at $60 per month with a two-year commitment, while Verizon’s cheapest iPhone offering starts at $90 with only 1 GB of data included. Sprint’s lead in iPhone sales is a massive game changer for US mobile carriers. Sprint will benefit from more Apple and Android related strength, and its overall lack of exposure to European weakness.

An intuitively undervalued stock

Sprint’s stock recently closed at $5.65. According to price-to-sales ratio, its stock valuation is 75% and 82% discounted compared to the industry average and AT&T, respectively. Sprint has a market capitalization of $10 billion and revenues of $34 billion. Sprint shares are now up by about 48 percent since the start of the 2012 but are still down 36.1 percent over the last 12 months. Investors are wary and frustrated about Sprints temporary execution losses and fail to value the long-term impact of current strategies.

The wireless trend is still Sprint’s main profit contributor. The smartphone market is also a strong profit center with over 3 million iPhones sold in the first two quarters of 2012 alone. Investors who hold on to Sprint stocks are appreciative of the potential increase in profit margins and expected free cash flow from LTE services and smartphone sales.

FINANCIALS

Its financial position is strong with unrestricted cash of $8 billion and free cash flows of around $2 billion. Sprint has a higher than desired debt-to-equity ratio of 230%. Its total debt in excess of $20 billion in the recent quarter is sufficiently covered with steady cash flows. The company’s operating activities improved by net cash by 7% in Q1 2012. Sprint is highly liquid at quick ratio of 1.47 and current ratio of 1.58.

EARNINGS CONSISTENCY

Sprint EPS this year rose by 16.79% while it is expected to grow by 41.70% next year. EPS quarter over quarter is -61.89%.

THE SOFTBANK FACTOR

Sprint currently on an execution and turnaround phase. Investing in Sprint rather than the other direct competitors seems counterintuitive for conventional investors. However, we predict bullish activity for Sprint as rumors on an acquisition by Softbank continue to round the business news.

Softbank’s latest and continuing investment in Sprint Nextel Corp. (S), valued at nearly $20.1 billion, will give Softbank, the third-largest mobile services provider in Japan, control of the third-largest mobile carrier in the United States. Softbank’s president, Masayoshi Son, will compete against the dominant U.S. mobile carriers, Verizon (VZ) and AT&T (T), by providing more data options than these larger competitors, including unlimited data plans.

In substance, it is not so irrational to hold Sprint stocks now for long-term gain. Sprint is obviously paving the way for a more profitable and stable future for its stockholders and consumers. The operational leverage of Sprint is unheard of in the mobile industry. Sprint is a risk-taking company with a promising and dynamic financial outlook.

NEWS AND CALENDAR

17-Oct-12 Argus issued an upgrade from Hold to Buy due to expected stock price of $7.50
16-Oct-12 There is also an upgrade from Robert W. Baird from Underperform to Neutral due to expected price from $4 to $6
16-Oct-12 Hudson Square Research downgraded Sprint from Buy to Hold

SCORECARD

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