Sprint Wins Over an Analyst

“Look at Sprint Nextel. Up more than 10% today, its the hottest stock in the S&P 500, raised to Outperform from Neutral at Credit Suisse. On its way to six bucks a share, they like the progress of the turn around.” — CNBC’s Squawk on the Street 11/16/2009

Sprint Nextel (S) is trading nearly 13% higher on extremely heavy volume following two positive bits of news. First, the company received an upgrade from an analyst at Credit Suisse (CS) to the firm’s bullish Outperform stance. They had initiated coverage at a neutral rating just under a month ago, but in that time they have been swayed by the turn around efforts underway at Sprint. One thing is for sure, up to this point the market has not bought into the turn around. While the S&P 500 has advanced nearly 60% since it bottomed in March, coming into the day Sprint was actually down about 6% since that time.

The analyst believes that the worst is behind Sprint Nextel as they will likely break even in retail subscriber growth in this quarter. If he is correct, this would be the first quarter since 2Q07 that the firm has not experienced a net loss in subscribers. Also, Credit Suisse says that the deal to buy Virgin Mobile (VM), expected to close in the fourth quarter, should provide a catalyst for the stock. They have raised their price target to $6, which would be almost double where the stock ended last week. While this is Sprint’s first major upgrade in some time, in the last month many analysts have begun to raise estimates of earnings for this year and next.

The other piece of good news, announced separately of the analyst upgrade, was that Sprint Nextel is paying down $1 billion of debt that it had accrued on a $4.5 billion revolving credit facility. The company said that after this payment they will have no debt outstanding in that facility. This is a step in the right direction for the company that had nearly $22 billion in debt on their balance sheet at the end of September. At the end of the quarter the stock had more debt outstanding than shareholder equity, which has been a major strike against them in our analysis. While that might still be the case at the end of this fiscal year, we are hopeful that paying down debt will continue to be a priority going forward.

As you can see from our historical valuation chart, we continue to believe that this stock is Undervalued. The last couple of years have been just awful for Sprint, but so much of the difficulty has been priced into the stock. When a stock has fallen out of favor like Sprint has, it only takes a few things to go the right way for the shareholders to really benefit. The projections for break even subscriber growth and the emphasis on strengthening the balance sheet are positive developments for Sprint.

Original post

Comments

[robert.b.fe...:]

I have had Sprint (S) for a long time and have purchased more through compounding and purchased a large block when it hit $1.5 last year. I'm of the opinion that it has a way to run still. When they did the dirty deal with Nexttell I had my doubts because the two protocols were so different. I held on to the stock even at a large paper loss and added to the position at what I deemed an opportune time. Now we shall see if they were really worth the nail biting. Can they reach $16 in 2012?

Nov 16 05:16 PM

[Humps:]

I would be happy if it were at $8 in 2012, much less $16!!

Everyone is weary of this stock, even after an analyst upgrade. If it reaches double digits in the next few years, that will be huge.

Nov 16 06:36 PM

[Busy_Me:]

I think the only way it will go now is up. It has taken them a long time to figure out a plan and I truly believe they have slowly been putting it in motion.

1. They have been paying their bills.
2. New product with great marketing.
3. They bought a mini cash cow. (VM)

They were getting an income from VM, because they are using the Sprint network right? Now they gain all their customers, and that's around 5M.

I'm long on Sprint, got it @ 3.99 Good luck to all !!

Nov 16 07:26 PM

[Saffie:]

Sprint was priced for armageddon just like the crippled bank stocks and see how they have performred despite some fleet footed accounting and neglible lending - very well I may say. And who thinks for a moment that Goldman Sacks-BAC-City reveal the true state of their derivative positions which I am sure will make Sprint look like Wallmart by comparison. Depsite the debt that Sprint carries, the stock is not a $3 stock. My opnion is that this share will easily double in 6 months never mind 2012. Once the stock gains momentum the market will price in where it will be 2 to 3 years ahead and it will FLY imho.

Nov 17 09:59 AM

[Hustle617:]

locked and loaded 5k shares @ 3.48 we are currently approaching the 200 day man at $4 going into the virgin deal tommorrow.. im also seeing alot of sprint commercials so thats pretty good. With the only 4g network with is 6 times faster than the rest ,debt being paid, new boost phone models hitting the market we are set to blow.

Nov 23 12:04 PM

[Hustle617:]

virgin mobil deal completed today ..=)

Nov 24 06:20 PM

[Busy_Me:]

Glad :-) to see so much positive input about Sprint on this message board. I agree I don't think it will take forever for Sprint to come back strong.

fyi, I read an article not to long ago and found the original article today, here is the link www.computerworld.com/...

also at the bottom of the page there is some stuff on twitter. Looks like I need to visit twitter. Have a great day!

Nov 24 06:38 PM