Sprint Nextel: All You Need is Patience

Investopedia Advisor submits: Sprint Nextel (S) continues to frustrate its long-suffering shareholders. But now is not the time to follow them to the exits. The stock is priced for value investors willing to wait for a turnaround.

The shares are down 15% since Sprint Nextel delivered second quarter earnings and cut guidance. Now at a two year low, the shares are down almost 30% since Sprint announced its merger with Nextel at the end of 2004.

The shares have fallen far enough. At $16.62, the stock is priced at a ridiculously-low 6 times 2007 free cash flow and offers a whopping 10% free cash flow yield. Priced any lower, Sprint Nextel’s free cash flow will make it an eye-catching takeover target.

With annual free cash flow of $5 billion expected for 2006 and 2007, Sprint Nextel has plenty of room to make good on its promise to buy back $6 billion worth of shares. Buybacks over the next 18 months will shrink the company’s share count by 12%, boosting value per share.

What’s more, Sprint Nextel shares trade at a big discount to AT&T, despite AT&T’s lower growth businesses. Sprint is priced at a mere 4 times EBITDA, while AT&T trades at more than 7 times.

Of course, with few short-term catalysts available to ignite them, Sprint Nextel shares could be dead money for some time. But, long-term investors should not write-off a turnaround. Patience will pay-off.

S 1-year chart:

By Ben McClure, Contributor - Investopedia Advisor

At the time of release Ben McClure did not own any shares in any of the companies mentioned in this article.

Comments

[Brent Jason]

I don't see the problem with Sprint Nextel. They are making the changes to their company, web site, product pro, and network that will add to their bottom line. All they need to do is market to their strengths, not try to jump on the "Leading Independent Research Firm" lie like Cingular and T-Mo. Sprint Nextel is still adding customers, and still making more profit then any other carrier. So there is no need to look down at them just yet.
Stay loyal and give them time to correct the problems.