Things Will Keep Working For Sprint

| About: Sprint Corporation (S)

It had almost gotten too easy to be skeptical about telecom Sprint Nextel (S). After all, the company made a slew of bad decisions over the past decade, including its ill-fated foray into walkie-talkies that was its Nextel branch, which will soon be shut down. Currently the stock is trading at around $5.20, and it's been on something of a tear since July. It's up 121% in 2012, and is sitting at its highest trading price since 2009. Still, it's no wonder many overlook Sprint when considering investments in telecom companies.

While I don't think Sprint is the next big thing, I do think that despite the recent rises, Sprint is still an undervalued buy. After all, the stock sold for $17 or $18 for most of 2007, and was over $8 for a good portion of 2008. It's been up there before, it just needed a kick. I think it may have finally gotten there and while there's a definite ceiling on Sprint's success (it won't be reaching Apple status anytime soon), it's due for some solid growth in the coming quarters.

Let's look at the recent climb. Last month, the company (finally) debuted its faster 4G LTE network, leaving the stone-age speeds that plagued its old 3G network. In addition, the company rolled out a new buyback program that should be extremely popular with consumers. It was truly some of the first positive buzz Sprint's gotten from analysts in recent memory, and propelled confidences forward.

The company has been busing rolling out its 4G LTE services in markets including Dallas, Atlanta and Kansas City. It's still early, but people seem to be happy with the speed and service coverage of the network, especially when compared with its previous generation 3G speeds. Competitors Verizon (VZ) and AT&T (T) had already rolled out its 4G networks, so while Sprint has some ground to make up, 4G technology is still relatively new. In a statement, Sprint senior VP Bob Azzi called the new network "consistent, reliable and really fast." Sprint released its Galaxy S III phone in June with the promise that a new 4G network was coming soon, and with the announcement of the debut of the network, Sprint rightfully saw its stock skyrocket. As for the functionality of the network itself, PC Mag tested the network after its debut, reporting that the new network would indeed be competitive with those of AT&T and Verizon. The magazine found that the new network was 25 times as fast as the company's previous network and faster than the current network of privately-held T-Mobile, a huge accomplishment that should bring back some tech-savvy consumers that had bailed in the past. The magazine generally praised the network, but noted that it was a problem that consumers didn't know when the new network would be available.

But there is another development for Sprint that has gotten less publicity but could be just as beneficial for the company's goodwill with consumers in the long-run. The company announced plans for an online buyback program, the first of its kind in the world. That's right; Sprint was actually at the forefront of something. As of now, Sprint customers that are looking to buy a new phone online are given direct instructions as to how to sell their old phone back, saving them money at a time when many folks need it most. Customers are also able to use the funds as a credit for a new phone, making upgrading more affordable. And with the new 4G network, Sprint should expect many customers to take advantage of this. Compass Intelligence named the program the tops in the industry, a great honor for a company that has certainly seen its better days. Chad Lander, director of the program, touted the success of the program to Bloomberg.

"Sprint Buyback has been enormously successful to date," he said. "Not only does it save our customers up to $300 at a time; it's helped us achieve an impressive collection rate of 39 percent that's almost halfway to our goal of a 90 percent collection rate by 2017. The new online option is part of our expanding Buyback ecosystem, which helps raise customer awareness and give even more choices and flexibility."

I'm not a Sprint customer myself, but I must admit to a certain degree of jealousy with regard to this program. It should be extremely popular with consumers, and I would imagine it will be good for quite a bit of long-term goodwill and loyalty to the company.

So those are a few of the reasons Sprint's been so hot lately, but our real question is whether it can use these developments to stay hot. I think it can, and I think that with a price just over $5, there's still money to be made. For one, the company should find a solid sales boost from this year's iPhone release. Sprint remains the sole national carrier that allows for unlimited data plans. Make no mistake, analysts have already noted how this limits revenues from phone plans, but it also serves as a selling point. And a strong one at that.

Pitching an iPhone sale with an unlimited data plan may be a selling point over AT&T and Verizon. The loss in revenue and drop in operating margin due to not garnering the data plan upgrades of its competitors, could certainly be nullified by an increase in consumers from the get-go. With an unlimited data plan to pitch, and a customer-friendly notion like its buyback program - Sprint offers a solid face to its sales plan.

Next, shutting down Nokia is only going to help those margins come alive again. Sprint posted its 19th consecutive quarterly loss and it's really closing up the wound that is Nextel. And it's doing it in a beneficial way, clearing up space from old antennas and keeping as many as 60% of Nextel customers locked in to Sprint contracts. Nextel operations should be completely shut down in the next year.

Admittedly, Sprint Nextel is a speculative play. The company has a past that leaves many investors unwilling to commit, I understand that. But the company has joined the new trends and is spearheading some of its own. It's making moves, plain and simple. In addition, Sprint could end up with the most satisfied customers of any of the telecoms, especially with its new buyback program which is the envy of the industry. It's a gamble, but it's still cheap and if you're looking for a cheap telecom, you'd be better off with Sprint than Nokia (NOK), which is expected to post losses once again this quarter. Sprint will keep these programs going, and with healthier operating margins, it should make for a few more quarters of climbing value.

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