Time to Squeeze Fresh Juice Out of Sprint

Sep.20.11 | About: Sprint Corporation (S)

Sprint (NYSE:S) is the company that is doing a lot things right and still trying to dig itself out of a hole. Here are some highlights:

  • A 2011 J.D. Power and Associates Customer Service Champion—one of only 40 companies that receive that distinction each year.
  • Sprint is the #1 most improved company in customer satisfaction across any industry in the last three years and #1 among all major carries in highest satisfaction value—ACSI.
  • 6th most green company in America in 2010--Newsweek.
  • The Everything Plan. Unlimited data, unlimited text and mobile to mobile calling. And at comparatively cheaper price than either AT&T (NYSE:T) or Verizon (NYSE:VZ).
  • iPhone 4 and/or 5 (rumors abound).

I hear naysayers complaining how Sprint has no quality products to offer, but the reasons above beg to differ. In addition, they have the EVO 3D, one of the most capable phones on the market (which I currently own), the newly-released Galaxy S II, whose specs are quite impressive , and the iPhone(s) in about a month.

Although they have a mountain of debt, they’ve been steadily paying it off. You can throw darts at Sprint all you want, but recovery has to start somewhere, and I believe they’re off to a great start.

What’s up next.
On October 7, Sprint is hosting a meeting to discuss its long-term plan for its 4G network. After struggling with a stalling Clearwire (CLWR) and signing a 15-year contract with LightSquared, many details remain vague, especially when Sprint will ramp up construction of new 4G towers and whether they will be WiMax or LTE.

Third quarter earnings are expected on October 28, which, unfortunately for Sprint, won’t include any boost from the iPhone.

Fresh Juice Squeeze
After the correction in early August, charts have been slowly stabilizing into trends. From the chart below, I believe Sprint’s stock has found some stability and its 20 period Bollinger bands are the closest they’ve been together in the last 6 months. Sign of a breakout? I’m not convinced.
Click to enlarge

Sprint has taken quite a big hit, dropping nearly 40% in the last two months. Given that the price is starting to stabilize in the 3.30-3.50 range (it closed today, September 20, at 3.33), I’d say the market has factored in the correction as well as Sprint’s current struggle to survive as a carrier. So that should eliminate another precipitous drop.

Click to enlarge

The chart is courtesy of Yahoo Finance.

Given the current trading range, if you are already deep in Sprint for the long haul, it may be time to write some covered calls for November, or even October if you feel lucky. I’ve calculated some potential covered call profits based on the closing bid prices of September 20. Nov $4 strike looks good to me.

Profits were calculated by dividing Bid by Strike. Obviously, commission will cut into profits.

The market hates uncertainty more than anything else. Sprint’s future and its plans for 4G expansion have not been completely locked down. Investors have been tossed seemingly random bones with no firm resolution. October 7 is resolution day. However, I don’t expect much to come of it. What’s the big revelation? It is likely that Sprint will define exactly how they’re using Clearwire and LightSquared, but I doubt that it will send the stock over $4.00.

The third quarter earnings in October will likely be negative again, maybe less negative than expected, but nothing stimulating enough to give the stock a huge boost. Headway will come in fourth quarter earnings after the iPhone/Christmas boost. And that, along with, hopefully, solid 4G expansion, might give the company, and thus the stock, strong footing moving into 2012.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.