Can Sprint's Stock Continue to Run?

May.26.11 | About: Sprint Corporation (S)

Sprint’s (NYSE:S) stock price jumped by about 5% Tuesday and has risen significantly by almost 40% from its dip following the AT&T (NYSE:T) and T-Mobile merger announcement. Despite the deal’s negative impacts to Sprint’s competitive position, investors see a silver lining. The shares now stand around $5.84 and close to our price estimate for the company.

It looks like the recent price moves could be a result of positive signals from Sprint with respect to its network expansion. At a recent Barclays Capital Global Communications, Media and Technology Conference, Sprint officials said that the company is now thinking beyond its partnership for WiMax with Clearwire (NASDAQ:CLWR) and plans to position itself better through its Network Vision program. [1]

So does Sprint’s stock have further to run?

We believe the answer depends on two factors. One, can Sprint attract T-Mobile customers as it prepares for its merger, and secondly, to what extent can Sprint derive cost benefits from modernizing its network?

We already incorporate the latter factor to an extent in our gross margin projections. Additionally we recently published an article mentioning how Sprint can lift its value by going after T-Mobile subscribers ("Sprint Looks to Shake Up the Big Guys"). In other words, there could still be some upside if we see signs of either of these two occurring.

Chart created using Trefis' app

In addition to this, Sprint may also benefit from overall industry-wide price increases as the merger reduces the number of major players. It remains to be seen whether Sprint will keep its prices low and focus on poaching customers from competitors — or if it will resort to a strategy of increased pricing to improve profits. Nevertheless, things aren’t looking too bad for Sprint.

Notes:

  1. Sprint CFO remains noncommittal on Clearwire funding, hints at LTE, FierceWireless, May 24 2011

Disclosure: No positions