Shares of Sprint Nextel Corp. (NYSE:S), the third largest telecom carrier in the US, have had a stellar run since we last reported on the stock back in July. The stock gained over 60%. The year to date performance of the stock is even more impressive, with a 137% gain in value and for good reasons too. Even though the company ended the third quarter with a loss, it was largely due to the depreciation charge for its Nextel network, which the company is in the process of shutting down. Core Sprint platform is looking strong and recent numbers point towards that, with key operational metrics following an improving trend. Postpaid additions, churn and average revenue per user are all improving, which is a sign that the company is making the right decisions.
One such decision was when the company decided last month to sell its majority stake to a Japan based Telecom Company for almost $20 billion. Even though the deal is subject to regulatory approval, it is highly likely that it will go through. The company is getting around $8 billion from the Japanese telecom operator to pursue its 4G network expansion plans as well as the shutting down of its Nextel network. In our previous report, we mentioned that capital injection will not only give strength to Sprint's balance sheet, but it would also open doors for strategic investments. One such investment, which came soon after news broke out of a Softbank- Sprint merger, was in Clearwire (CLWR), the mobile and fixed wireless company, for its wireless spectrum.
The Telecom Industry is all about airwaves and especially now, with smartphone usage on the rise, they have become even more crucial for a telco's success. Sprint is still behind AT&T (NYSE:T) and Verizon (NYSE:VZ) in terms of market coverage, but it is aggressive in its pursuit of more spectrum. The company recently decided to purchase US Cellular Corp's businesses in major areas in order to expand its coverage. The $480 million deal will also give Sprint around 10% of US Cellular's total customer base.
In another press release by the company, it touched upon its plans to expand its 4G LTE network. The company has been aggressively building its next generation network and has launched services in 32 cities so far, adding another nine cities to the list. Sprint launched its LTE network in July and is now expecting to cover approximately 120 cities by the year end.
We reiterate our previous stance on the stock based on the recently filed results as well as other developments. We believe the company is taking the right steps in competing with its stronger rivals, and with Softbank's financial assistance, it stands a better chance of succeeding in its plans of achieving wider market coverage and a broader customer base.
The stock is trading at cheap valuations, as reflected in its price to sales ratio, which is at a 66% and 52% discount over the multiples of AT&T and Verizon, respectively. Based on its valuations as well as its potential for further growth, which is backed by the recent steps taken by the management, we believe the stock has further upside potential.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: The article has been written by Qineqt's Telecom Analyst. Qineqt is not receiving compensation for it (other than from Seeking Alpha). Qineqt has no business relationship with any company whose stock is mentioned in this article.