Sprint Nextel Corporation (S) shares were cratering to new 52-week lows just a couple months ago, but it has been soaring and has nearly doubled in a very short time. To be sure, the company seems to be doing better than some had expected, but a big part of the recent run seems to be the almost daily mention of Sprint by CNBC's Jim Cramer on both CNBC morning shows, the CNBC website and the "Mad Money" show that Cramer hosts in the afternoon. Even though the stock has already made huge gains, a recent article about Sprint was just published by CNBC titled "Cramer's Next Big Spec Play".
Sprint also reported a "phenomenal" second quarter Wednesday night, which Cramer said further solidified the company's comeback story as one of the greatest out there. Over the last six months, Sprint's share price has doubled and the stock surged 20 percent on Thursday alone. But despite all this, Cramer urged anyone who owns Sprint not to ring the register just yet.
Calling Sprint one of the greatest comebacks ever seems silly. One of the greatest comebacks would have to be about Apple (AAPL), which traded down to the single digits before rising to about $600. Or how about Priceline.com (PCLN), which traded for about a buck after the Internet stock market crash, and has since risen to over $700 per share. While Sprint shares might continue to go higher on momentum, and with Cramer's backing, it might make more sense to be selling on rallies rather than buying, here's why:
1. While the stock has seen a massive "comeback," there has not been as much of a comeback in terms of financial results. Sprint posted a quarterly loss of $1.37 billion or 46 cents per share, when a $728 million impairment and depreciation charge is included. Revenues did come in stronger than expected at $8.84 billion, versus expectations of $8.73 billion. Overall, the company once again reported losses, and the near doubling of the share price seems excessive, especially since losses are expected to continue.
2. Sprint's balance sheet carries a high level of debt. Yahoo! Finance states that Sprint has about $7.57 billion in cash and $22.27 billion in debt. Heavy levels of debt could increase risks for investors. Plus, Sprint reportedly will need to pay back about $2.6 billion worth of debt in 2015, and it needs to continuously invest in order to remain competitive.
3. Recent economic data shows the United States could be headed into a recession, especially with the continuing debt crisis in Europe, and a slowdown in China. Things could get worse in the U.S. later this year because taxes are expected to rise, and the government has planned major budget cuts. Countries like Greece and Spain that have raised taxes and reduced spending have seen sharp economic contractions. This is why concerns about a "fiscal cliff" are well-founded. When times get tough, investors tend to put balance sheet debt more into focus and with Sprint's high debt load, and a potential recession, it does not make sense to expect "sky's the limit gains" as numerous risks remain.
Here are some key points for Sprint:
- Current share price: $4.31
- The 52 week range is $2.10 to $5.75
- Earnings estimates for 2012: $1.58 loss per share
- Earnings estimates for 2013: $1.12 loss per share
- Annual dividend: none
Data is sourced from Yahoo Finance. No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.