Now Is The Time To Speculate On Sprint

| About: Sprint Corporation (S)


Only $4 billion of Sprint's market cap is available to trade.

Sprint has finished the bulk of its network upgrades.

Sprint's new CEO knows how to sell.

A week ago, at another site, I wrote an article praising Sprint (NYSE:S) and predicting better times.

This week I took my own advice and speculated on the stock.

I'm not expecting a quick pop. What I'm expecting is that, a year from now, Sprint shares will be trading at 20%-40% more than their present price of under $6. Here's why.

First, Sprint is said to be worth about $22.5 billion with almost 4 billion shares outstanding. Not precisely true. Softbank (OTCPK:SFTBY) owns 78% of those shares, so the actual equity that can float - that might be available for trade - is barely $4 billion and fewer than 800 million shares. There is a floor under your equity, a long-term holder who is unlikely to be bailing.

Second, the resignation of former CEO Don Hesse for Marcelo Claure represents the start of an important transition. Hesse was an operations guy. He managed the build-out of Sprint's spectrum assets in the U.S., including those obtained through Clearwire. Sprint now has an LTE network covering 100 million POPs with the ability to routinely serve true broadband speeds of 5-6 Mbps to subscribers. (Most people aren't using cellular phones to feed big screen TVs - not yet.) They are, for the first time, technically competitive.

That doesn't mean they're the best. Sprint could still use some more low-frequency bandwidth to cover gaps in ITS present network. That's precisely the kind of spectrum that the FCC is planning on auctioning next year. The auction rules will not let AT&T (NYSE:T) and Verizon (NYSE:VZ) outbid everyone and bank that spectrum, increasing scarcity. Sprint will get some.

Claure, meanwhile, is a marketing guy. hE built Brightstar, a global phone distributor, from nothing in 1997 to a $10.5 billion business last year. He knows how to sell things. He knows how to build new sales channels, both direct and indirect. He's entrepreneurial. He will try stuff, be persistent, abandon what doesn't work and try again. He's the right kind of guy for the new Sprint, as he showed in his first meeting with employees yesterday.

Third, Son-san is patient. Sprint today is in precisely the position that Vodafone Japan was when Softbank bought it in 2006 for $15.4 billion. That's less than the $21.4 billion he paid for his Sprint stake, but the U.S. is a bigger market. What we know about Vodafone is that Son-san was able to use low prices and advertisements to make it the largest mobile operator in Japan, larger than phone company rivals KDD and NTT. That process has just begun in the U.S. market and we know it works, because how do you think John Legere of T-Mobile US (NASDAQ:TMUS) became such a big deal in such a short time? Price buys market share.

Fourth, Sprint is unloved. The way you make money is not to buy loved companies, but unloved ones. Writers both here and elsewhere are falling all over themselves right now dumping on the stock. If you're looking to make money on a turnaround, consider getting in before it's obvious to everyone.

Finally, how long do you wait? As I said before, if there's nothing good happening in a year I'll probably take my losses and go away. If Sprint isn't increasing its market share, if it fails at the FCC auction, if Son-San can't make some other move that boosts the value of his holding beyond the $21.4 billion Softbank paid, I'd consider getting out. If a bus runs over Son-son, I might get out sooner. But billionaires don't walk in front of buses.

Disclosure: The author is long S. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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