by Austin Smith
To say that Sprint (S) has had a rough time as of late would be an understatement. Over the course of the last 12 months, the stock has lost roughly 60% of its value. Currently, the stock is trading near its 52-week low in the lower half of the $2 per share range. The beta of Sprint is average at 1.0 making the stock as volatile as the market. However, there are other securities that may be a better investment. The stock offers no dividend and has negative earnings per share of $1.10. The stock has not posted a posted a yearly profit since 2006. Some of the competitors that may be a more viable option are AT&T (T) and Verizon (VZ).
In terms of market cap, AT&T has been the leader in this industry. Although the stock did suffer a bit in the second half of 2011, it has since recovered and is up about 10% from its price a year ago and is currently flirting near a 52-week high in the low $30's. Another attractive feature of AT&T is the company's recent addition to the elite group of stocks known as dividend aristocrats. These are stocks that have not only kept a consistent dividend, but have also increased every year for 25 years. The stock has been seen as a safe one in recent years. Although analysts believe the target price will keep the stock in the low $30's, the constant increasing dividend, currently at 5%, is an attractive feature that investors like.
Since a year ago, Verizon's stock price has slowly gone up about 15%. So how does a company like Verizon continue this trend and continue to grow revenue? The company recently purchased Hughes Telematics, a provider of wireless-enabled services to cars. The purchase is reportedly for $612 million in cash and the company plans to use this connection to broaden the way subscribers use Verizon's network. This is not really a stretch for Verizon as it already partners with GM (GM) for its OnStar services. Ultimately, this could be a good opportunity for the company and will help grow the bottom line.
Probably one of the biggest pieces of news for wireless carriers is an announcement by Leap Wireless (LEAP). The company will be the first prepaid carrier in the U.S. to sell Apple's (AAPL) iPhone. The offer will begin on June 22 on the $55-a-month unlimited talk, text, and data plan. While this is great for consumers, this is not as good for companies such as Verizon, Sprint, and AT&T. There will be some differences between the offering. Although Leap will be able to offer the iPhone with no contract, and at a low rate, it will not be able to offer the iPhone at a high of a subsidized price. The phones will cost from $399 to $499. Analysts estimate the company will subsidize about $100 to $125 per phone, which is slightly higher than its typical smartphone subsidy. Other companies are able to offer the iPhones for a much cheaper price but require contracts that can last a year or more. The company hopes to gain a lot of business from competitors through the offer. Leap's stock has not performed well and has lost almost 75% of its value over the past year.
Sprint has had a tough time over the last few years. One disastrous move that Sprint is finally about to walk away from is the merger with Nextel. While the merger had made sense at the time, it ended up a problem for the companies as the technology was not compatible and caused additional and costly work to be done on towers in order to service customers. Nearly all of the value from the merger has now been written off. Currently, Sprint has plans to shut down the network as soon as June 30th, 2013. Although this could lead to a turnaround for Sprint, the company could lose customers who choose not to renew with Sprint once their contracts with Nextel expire.
In Sprints favor for a turnaround, the company has been able to overcome a major financial hurdle. Sprint has secured a $1 billion, with the possibility of another $2 billion, from Sweden's Ericcson. The loan is to purchase equipment in order to set up the company's next-generation LTE network. Verizon and AT&T are already running their own LTE networks. And while Sprint may be showing up late to the party, it will put them in a better position to compete. Sprint was also third to add the iPhone to its lineup as well. However, Sprint has benefited recently as opposed to the competition as 44% of the total 1.5 million iPhones sold towards the end of the quarter were new activations. Both AT&T and Verizon have reported a drop in activations.
Although it may be possible for Sprint to be preparing itself for a turnaround, I would not recommend the stock at this time. The company has suffered several years of losses and looks like it will have Nextel as a burden for at least a couple more quarters. Analysts do see the stock price moving upward with a mean target price of $3.71. At the current price, it would be about a 45% increase. While this does have a nice ring to it, I see the stock continuing to struggle and lag behind both AT&T and Verizon.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.