Those who follow me know that I've been pretty positive on Sprint (S) since the company announced it was going to allow high-end smartphones, including the iPhone, on its prepaid network (that is, Sprint was going to give consumers the choice of not being financially raped to use its service.)
I had been negative on the company up until earlier this year, but turned my position rather quickly when the facts changed.
There's only one way to describe that trade and my change in view: It's working.
Click to enlarge:
And there's only one way to describe this move -- stunning.
Credit Suisse put a $6 price target on the stock Tuesday morning, which is partially responsible for Tuesday's ramp job. The problem with buying into it now is that you're late, and as usual the folks doing so-called "analysis" are now happy to give you a recommendation after a monster move has already taken place.
On 5/2 I wrote a rather positive article and on 5/15 another. And if you got involved around the time of either you bought under $2.50/share and now are enjoying a $1.10+ gain on that, which is roughly 40%, give or take a few.
On a fundamental and business basis, Sprint has done two highly-intelligent things of late. First, it broke the glass with high-quality smartphones on prepaid. And second, it did LTE right instead of fast, waiting for the equipment to catch up to where Sprint wanted to be and now it is aggressively rolling it out, both unloading its 3G network and providing serious cost efficiencies compared to those who "just had to be first" and willingly took the hit that comes from deploying half-baked "solutions" that ultimately wind up requiring expensive retrofits. Finally, while Sprint's debt load looks daunting, it has taken advantage of the market's rate structure to get costs under control and make sure its financing is secure for a sufficient amount of time to complete its LTE rollout.
The bears were simply wrong here -- they thought Sprint would run out of money, get shut out of the market and go under trying to build the network. Why they didn't run when the announcements started coming on Sprint securing financial terms is beyond me, but it appears they didn't until recently when the stock price started to ramp like crazy.
From a technical perspective, a trendline anchored around the early June timeframe (when there was still time to get involved) is now playing out in a pattern I absolutely love when trading individual equities. That is, a rapidly-accelerating move north, followed by a consolidation, which then leads to a second push at a slightly lower slope. That second move then stalls, pulls back a bit and consolidates but holds the previous low from the first move and then regains the trendline.
Why does this happen? Because all the people who were shorting the bejeezus out of the stock got rammed, and as they cover, they overwhelm those who have now "gotten back to even" and sell. Such resistance levels are challenged but fall as the buyers overwhelm the sellers -- pretty basic stuff. The price action eventually starts to turn some of the bears into bulls, who lick their wounds by gulping up some shares to try to make back what they lost shorting into the hole.
Now about that $6 price target. Sprint is currently selling at 0.3 times sales.
Verizon sells at 1.15 and AT&T at 1.63!
If Sprint was to have flat sales yet sell at Verizon's multiple of sales it would be nearly a triple from here, or roughly $14/share.
Is that possible? I wouldn't expect it to be in the short-term. But before you poo-poo this possibility, remember that GE (GE), which nobody really thought would go bankrupt, was selling around $6 during the early part of 2009, and now is close to $20. Textron sold for $3.57 at the bottom, and is now $23.
That's not a prediction, but it serves to illustrate that the Credit Suisse target is not ridiculous -- in fact, it's rather credible, although my first target area for Sprint is the bottom of the gap right near $4.50.
Disclosure: Rather long and liking it.