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Why Sprint Represents A Good Buying Opportunity

|Includes:Sprint Corporation (S), TMUS, VZ

A Bullish case for Sprint

Sprint (NYSE:S) posted a $1 billion loss for the fourth quarter, or $0.26 per share, but this was well ahead of the $0.33 analysts had expected; revenue of $9.14 billion was also above the $8.97 billion consensus estimate. Sprint also managed to add 58,000 contract subscribers in the fourth quarter.

Speculation swirls around a possible deal to merge with T-Mobile US (NASDAQ:TMUS) which would enhance its competitive advantage against AT&T (NYSE:T) and Verizon (NYSE:VZ) More details here.

If you look at Sprints earnings report closely, it reported $9.1 billion in fourth-quarter revenue, a 1.5% year over year increase and ahead of Wall Street's $9.0 billion sales estimate. Sprint saw a $0.26 GAAP net loss per share, up from a $0.44 loss per share a year ago. Analysts were expecting a larger $0.34 loss per share.

Sprint added 682,000 subscribers in the quarter, including 58,000 post-paid customers on contract and 322,000 prepaid lines. Ninety-five percent of all post-paid phones sold in the fourth quarter were smartphones. The company reached a record high of 53.9 million total subscribers at the end of the quarter.

Looking ahead, Sprint expects adjusted EBITDA of roughly $6.6 billion in 2014, up from $2.4 billion in fiscal year 2013.

Sprint is also heavily investing in its infrastructure which will support the new Sprint Spark network which is a triple-band LTE platform promising network speeds of up to 150 megabits per second. This is available in 14 major markets today; Sprint also hopes to cover more than 100 urban areas over the next 2-3 years.

"We are building a foundation for future success," said Sprint CEO Dan Hesse.

Against this upbeat price action, call volume has more than tripled average intraday levels, and a handful of option traders are betting on a quick move higher in the near term.
After this report Deutsche Bank upgraded Spring to a buy rating.

Along with the upgrade, analyst Brett Feldman reiterated his price target of $9.25, representing about 10.12% worth of upside to Friday's close. While momentum traders might be turned off by the stock's steady year-to-date decline, Feldman believes Sprint is too cheap to pass up given its still-significant competitive edge and solid growth prospects specially if the deal with T-Mobile goes through.
According to Deutsche, Sprint's risk/reward trade-off is rather attractive at this point. "Our upgrade to Buy reflects the recent pullback in the stock and is based on the same 2 key themes we outlined last July: (1) a significant spectrum advantage and (2) an outlook for material EBITDA growth during the next 2 years," noted Feldman. "

Barclay's also has a $9.00 price target on the stock. Barclay's price target suggests a potential upside of 7.15% from the stock's previous close.

As wall street and the banks digest and decipher the recent earnings reports, Price targets are slowly inching up by the day, and I do feel the current price targets of $9-9.50 set by the banks are very conservative and they will be raising the price targets soon which represents another catalyst for the stock.

Based on the fundamentals as well as technical pattern in Sprint, I believe the upside is to about $11.50 and $15+ if the deal with T-Mobile goes through.

Disclosure: I am long SBUX.

Stocks: S, TMUS, VZ